Senate "Blank Slate" Tax Reform

On June 27, 2013, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) sent a letter to each senator, announcing their plan to develop a tax reform bill that begins with a "blank slate" tax code. The plan considers all tax expenditures and credits eliminated until proven worthy of inclusion, and gives senators the opportunity to not only justify the reinstatement of certain provisions, but also to provide recommendations for overall tax reform. Senators had through Friday, July 26 to respond, preparing for a possible bill mark-up in September.

On Thursday, July 25, Independent Sector and nearly 1250 national, state, and local nonprofit and charitable organizations sent the below letter to each Senate office, urging them to protect charitable giving incentives during the "blank slate" tax reform process.

Read the letter and see who signed

July 25, 2013

Dear Senator:

As Congress moves forward with comprehensive tax reform, we ask that the charitable deduction be preserved in its current form and that the IRA charitable rollover, enhanced deduction for contributions of food inventory, and the special rules for the contributions of capital gain real property for conservation purposes in the annual tax extenders package be made permanent in the tax code.

America’s charitable and philanthropic community, among many other contributions, provides educational and economic opportunities for families in need; works to alleviate poverty and suffering at home and abroad; assists victims of disaster; provides essential health services; enhances the cultural and spiritual development of individuals and communities; facilitates scientific advances; and fosters worldwide appreciation for the democratic values of justice and individual liberty that are part of the American character.

The charitable sector’s broad community impact and public support is evidenced by the fact that Americans donate nearly $300 billion each year to support the work of charitable nonprofit organizations. This charitable giving, which supports both the employment figures as well as the vital programs and services outlined above, is encouraged through the charitable deduction and other incentives in the tax code. More than 80 percent of the 46 million Americans who itemize their tax returns claimed the charitable deduction. These individuals and families, who represent barely one quarter of all taxpayers, are responsible for more than 75 percent of individual contributions to charitable organizations.

Congress has long recognized the value of the tax code and its effect on donations to charitable organizations, dating to the inception of the charitable deduction in 1917. The generosity of Americans, further encouraged through tax incentives, has made possible extraordinary contributions of charitable organizations in local communities, large cities, and rural areas all dedicated to improving life for all. The power of the incentive can be seen in the timing of charitable gifts. Between 2003 and 2009, charitable organizations in the U.S. received $281 million in online donations. More than 22 percent of those donations are made on December 30 and 31 each year, underscoring the extent to which donors are aware of, and influenced by, the tax implications of their giving.

The charitable deduction is an extremely efficient way for the federal government to spur investment in communities. When an individual in the highest tax bracket donates $1,000 to charity, the government foregoes just under $400 in tax revenue. However, communities benefit from the entire $1,000 gift. The government is unlikely to find another vehicle that can leverage private spending for community services at better than a 2.5-to-1 ratio.

The charitable deduction also treats every taxpayer who claims it equitably; regardless of the rate at which their income is taxed, people are not required to pay taxes on the portion of their earnings donated to charity. The American people appreciate the fairness of the deduction, and also understand its positive impact on their communities. An April 2011 Gallup Poll found that 62 percent of Americans who do not claim the deduction support its preservation as an incentive for giving.

Eliminating the charitable deduction would undermine significantly the ability of charitable organizations to continue creating jobs and delivering programs and services by drastically reducing the level of funding available to them through charitable donations. According to a 2012 survey by the Center on Philanthropy at Indiana University, approximately half of high-net-worth donors said they would decrease their giving if they did not receive a deduction for donations. Further, it has been estimated that repealing the charitable deduction would cause giving to decline by 36 percent, which would have resulted in an $82 billion decline in individual charitable giving in 2012. 

In addition to preserving the individual tax incentive to encourage charitable donations, we urge the committee to extend permanently the charitable giving incentives that are included in the tax code but must be renewed every year as part of the annual tax extenders package.

  • IRA charitable rollover - The individual retirement account (IRA) charitable rollover tax incentive encourages older adults to make gifts to charities by enabling individuals age 70½ to donate up to $100,000 to a qualifying public charity directly from his or her IRA without incurring tax on the withdrawal. During the first two years the IRA charitable rollover option was available, it prompted more than $140 million in charitable donations, with the median gift just under $4,500, to beneficiaries that include social service providers, religious organizations, cultural institutions and schools – organizations that benefit communities and improve lives every day.
  • Enhanced deduction for contributions of food inventory -This provision allows C Corporations to claim a tax deduction for donating surplus wholesome food equal to the donor’s basis in the donated food plus one-half of the ordinary income that would have been realized had the food been sold at fair market value (capped at twice the donor’s basis in the donated inventory). The expanded incentive has been vital, as community food pantries and other meal providers attempt to keep pace with the growing number of Americans who go to bed hungry every night.

  • Special rules for the contributions of capital gain real property for conservation purposes - The enhanced deduction for donation of a conservation easement increases the maximum deduction a donor can take for donating a conservation easement in any given year, allows qualified farmers and ranchers to deduct up to 100 percent of AGI, and permits taxpayers to carry forward excess contributions for up to 15 years. Within its first two years, the enhanced incentive helped America’s land trusts increase the amount of land conservation by at least 535,000 acres. 

The charitable giving incentives in the tax extenders package have encouraged individuals, large corporations, and small businesses actively to support the development and sustainability of their communities. They have spurred contributions, for example, to build cancer centers, develop counseling programs for at-risk youth, provide housing for homeless families, conserve wilderness areas, and offer art therapy for people with developmental disabilities.

Thank you for your consideration of these critical issues.


Independent Sector

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