My husband and I tithe to our church, meaning we give 10 percent of our income. We also donate money to various charities. Our giving results in a tax break because we itemize on our tax return.
Would we give less if we didn’t have the tax deduction? I’m confident we wouldn’t. Having the tax deduction is a bonus but one that has never driven us to give more or less. But having said this, many people are motivated by tax breaks. And some do give more because of the charitable deduction.
Our country is deeply in debt and our leaders are struggling to find ways to get the federal budget in balance. We are facing a “fiscal cliff” — the expiration of the Bush tax cuts along with spending cuts — that could trigger another recession. One strategy that has been proposed to avoid the cliff is to reduce or eliminate the deduction for charitable donations.
In his 2013 budget, President Obama proposed capping the deduction for taxpayers earning more than $250,000 at 28 percent — even if they are in the 33 percent or 35 percent tax brackets. The president argues that most taxpayers don’t get the benefit of the deduction because they don’t itemize. And the tax break tends to benefit the wealthiest citizens the most.
The deduction is a lucrative target because “among the many tax expenditures that are in the federal tax code, the tax deduction for charitable contributions is among the largest in terms of its estimated revenue impact,” according to a research paper by Joseph J. Cordes, an economics professor at George Washington University.
If the government caps the deduction, charitable organizations fear that Americans will cut back on their giving. Independent Sector, a coalition of nonprofits, foundations, and corporate giving programs, is lobbying to keep the tax break unchanged. The group has created a page on its website (www. independentsector.org) where people can send a form letter to lawmakers and the president.
The Charitable Giving Coalition, which represents large nonprofit organizations, recently sent letters to Obama and congressional leaders urging them to preserve the deduction. “America’s economic recovery requires a strong philanthropic sector, whose role as an investor in innovation and supporter of safety net services is more important than ever for a faster, sustainable economic recovery,” the group wrote. “This is particularly true as local, state and federal budgets decrease and nonprofits continue to suffer the consequences of America’s recession — increased demand for services with significantly fewer resources .”
Regardless of income, education, age, race, or gender, people overwhelmingly support the deduction, according to a survey by Dunham+Co., a consultant for charitable groups. The company also found that 33 percent of donors said they would reduce their giving if the deduction didn’t exist. Forty percent of donors ages 40 to 59 said they would reduce their giving.
Charitable donations help take up the slack from reduced government services and financial aid to people in need. That’s an economic benefit we can’t afford to mess with.