CARE Act of 2002

INDEPENDENT SECTOR’s letter to the Chronicle of Philanthropy 
about our support of the CARE Act

May 30, 2002

To the Editor:

INDEPENDENT SECTOR strongly supports the CARE Act for two very simple reasons. First is the matter of principle. We believe that charitable contributions should not be included in an individual’s tax base and that, therefore, all Americans should have the ability to deduct fully their charitable contributions from their taxable income. Right now, only the one third of taxpayers who itemize on their tax returns have that right. The CARE Act would give all Americans the ability to deduct at least a portion of their charitable contributions through the enactment of the charitable deduction for nonitemizers. 

Second, we believe that it is good public policy for tax policy to encourage charitable giving by all Americans. That is exactly what the CARE Act does, not only through the nonitemizer deduction, but also through the IRA charitable rollover and several other provisions in the bill. 

Is the version of the nonitemizer deduction as it appears in the CARE Act exactly the way we would like it to be? Of course not. However, we believe that the nonitemizer version in the CARE Act represents a credible step towards giving all Americans an important incentive to increase their charitable contributions. Such is not the case for the version in H.R. 7, which sets the ceiling so low as to create virtually no incentive for increased giving. Thus, we do not support the version of the non-itemizer deduction as it stands in H.R. 7. 

To make the nonitemizer deduction more effective as an incentive for giving, the ceiling will have to be raised over time. Nonetheless, the great virtue of the nonitemizer deduction without a floor is that it makes the deduction available to all Americans no matter how much or how little they give. That is a principle that IS strongly supports.

There are trade-offs, of course. Many people will get rewarded for current giving and a non-itemizer deduction with a ceiling instead of a floor is less efficient in terms of loss of Treasury Revenue compared to gains in increased giving. We recognize these trade-offs but believe them acceptable given the importance of making the deduction available to everyone, particularly low and middle-income taxpayers who make up the majority on nonitemizers. 

Should IS back off from its principles and historical support of the non-itemizer deduction and other tax incentives for giving right now because of last year’s tax cut and new spending needs related to the war on terrorism and domestic security? Our answer is no. There will always be the need to balance spending with tax revenue, but our firm conclusion is that this particular reform to our tax policy is sound public policy. It is a fallacy to argue, as some have, that money saved by not enacting this particular tax reform will somehow result in increased spending on social welfare programs. The reality of legislative sausage-making in Washington that we call passing a bill is that if the CARE Act is not passed, the money is much more likely to be spent on other tax cuts such as the permanent repeal of the estate tax, and not on spending programs.

IS also supports reducing and simplifying the foundation excise tax to a flat 1%. That will result in increased funds flowing from foundations to their nonprofit grantees. IS will also continue to push for greater funds for IRS oversight of the nonprofit sector, be that through a legislative earmark of funds or through other means.

The provisions in the CARE Act that relate to funding of religious organizations, expedited receipt of 501(c)(3) status, discrimination in hiring for groups that receive federal funds, and the new Compassion Capacity Fund were worked out in excruciating detail by the co-sponsors, Senators Santorum and Lieberman. We, and many of our members, have carefully reviewed these features of the bill and have concluded that they do not represent any significant change to the status quo in terms of government funding of either secular or religious organizations. However, this is an element of the bill we are watching carefully, because failure to preserve the Senate features of the CARE Act in conference with the House could scuttle the whole bill and could cause us to oppose the measure. 

Let me also say that several of the same principles that motivate IS to support the CARE Act lead us to oppose repeal of the estate tax. Because tax policy should encourage charitable giving, because we believe that individuals of substantial means have a special leadership responsibility to give and because we believe that the estate tax serves to reduce the vast sums of inherited wealth in the hands of a very few at a time of a growing divide between rich and poor in our country, the IS board of directors adopted a policy last year to oppose repeal of the estate tax. That continues to be our position and it is one that we are actively promoting. Indeed, it was the IS position and information on estate tax repeal that was cited at length in a recent article in the influential Capitol Hill newspaper Roll Call. 

The nonprofit sector has an historic opportunity to mobilize in support of a bill that could have far-reaching implications for increased giving by all Americans. In addition to increased giving, the CARE Act will also establish an important principle that giving by every American is valued and valuable and that our tax policy recognizes and rewards that.

Sincerely,



Sara E. Meléndez
President and CEO
INDEPENDENT SECTOR