>> Federal: Senate Democrats Release a Plan
>> Federal: Charitable Hearing
>> Consider This: An Active Week in Washington on the Charitable Deduction
>> Upcoming Events: ACR Summit for Leaders
This week, Members of Congress left town for the President’s day break without reaching an agreement to offset the looming sequester, the set of spending cuts slated to take effect on March 1st. Both sides indicate the sequester is not the best way to approach spending cuts, but have been unable to break the stalemate in Congress and with the White House. On Tuesday, the President called on Congress to make a deal as soon, urging them to delay the sequester by enacting targeted spending cuts and closing certain tax “loopholes” through comprehensive tax reform. He acknowledged that would be very difficult and added that “at minimum, Congress should pass a smaller package of spending cuts and tax reforms … to give them time to work together on a plan that finishes the job of deficit reduction in a sensible way.”
House Republicans immediately denounced this plan. Speaker John Boehner (R-OH) said, “We should close loopholes and carve-outs in the Tax Code, but that revenue should be used to lower rates across the board…Tax reform is a once-in-a-generation opportunity to boost job creation in America. It should not be squandered to enable more Washington spending. Spending is the problem, spending must be the focus.” The gridlock over tax increases vs. spending cuts continues.
Why does this matter to the philanthropic community? Because these cuts will be felt by many and there will undoubtedly be a push in Washington to instead find revenue. Revenue could come from anywhere, putting the all of us in the charitable sector on alert.
Just before leaving town, Democrats in the Senate released a $110 billion proposal that would delay the sequester through the end of 2013 by enacting spending cuts and increasing taxes. Half of that $110 billion would come from new spending cuts that include ending certain farm subsidies and cuts to defense spending, but only after 2015. The other half would come from tax increases on those earning more than $2 million a year – a 30% minimum tax called “The Buffett Rule.” This bill would also eliminate all other deductions and credits for this income group, except for the charitable deduction. In its current form, this new proposal is also not expected to pass, but it could serve as the basis for negotiations going forward.
As you may recall, the Buffett Rule is not new and this type of legislation has been tried before. Last year, with the support of President Obama, Senator Sheldon Whitehouse (D-RI) introduced a bill, S. 2230, that would have enacted the 30% tax on adjusted gross incomes exceeding $1 million, eliminated all other deductions and credits for this group, but kept the charitable deduction. Ultimately, the Senate voted down S. 2230 in April and the measure was not brought up again until now. But the re-emergence of this idea, with the carve out of the charitable deduction, sets a precedent that some Members on Capitol Hill have recognized the charitable deduction is different from all other deductions and will be important as we continue our work with Congress.
Meanwhile, on the House side, Ways and Means Committee Chairman Dave Camp (R-MI) announced the formation of 11 small working groups tasked with taking the next step towards tax reform. Importantly, one of the groups will focus on charitable giving incentives. Each group will handle one issue and will be led by one Republican and one Democrat from the Committee, but open to input from all members. The groups are not expected to produce legislation, but rather work with the Joint Committee on Taxation to issue a report to the Chairman. The deadline for this report is April 15th. The subject areas are 1) real estate, 2) pensions and retirement, 3) charitable and tax-exempt organizations, 4) financial services, 5) small businesses and pass-throughs, 6) energy, 7) education and family benefits, 8) international tax law, 9) debt, equity and capital, 10) manufacturing and income, and 11) tax distribution.
The two co-chairs for the charitable working group are Rep. Dave Reichert (R-WA) and Rep. John Lewis (D-GA). Rep. Lewis is also the lead Democrat on the Oversight Subcommittee that has jurisdiction over the sector. The working groups are in the process of identifying their specific goals and will ramp up their efforts shortly thereafter. ACR will remain actively engaged with these Members and will continue to be a resource for all tax writers on issues important to charitable giving.
As you know, on Thursday, February 14th, the Ways and Means Committee held a hearing examining tax reform and charitable contributions. Chairman Dave Camp opened the hearing by saying, “Because of the critical role that charities play, the Committee needs to hear directly from the charitable community before considering any proposals as part of comprehensive tax reform.” Ranking Member Levin also commented on the merits of the charitable deduction, calling it “sound tax policy” and not a loophole.
Dave Wills, president of the National Christian Foundation (NCF), testified on behalf of ACR. Wills, an activist in the philanthropic sector for over 20 years, underscored the Chairman’s remarks in his oral testimony. “The charitable deduction plays a crucial role in the health and wellbeing of our society. Simply put, a decrease in charitable deduction affects what the charity will receive. It is not the taxpayer who is harmed. It is those who need charitable services the most.”
During the question and answer portion, Members inquired about the range of options for altering the charitable deduction. This included discussion on if and how the tax code could direct charitable donations toward specific services, and ways to regulate some for-profit business dealings by nonprofit entities.
The hearing also featured testimony from several of ACR’s partners in the Charitable Giving Coalition as well as many others in the charitable community who are concerned about tinkering with the charitable deduction. One testimony of interest came from Brent Christopher, president and CEO of Communities Foundation of Texas in Dallas. Christopher provided his own unique perspective. Speaking of the deduction he noted “…since 1917, the charitable deduction has been a vital thread in the fabric of charitable giving in America. It may not be the primary motivation, but it definitely affects the size and the timing of charitable gifts. It is not a ‘loophole’ that needs to be closed. It is a multiplier of generosity.”
In a statement for the record Alex Reid, currently a tax counselor at Morgan Lewis and a former staffer on the Joint Committee on Taxation, made the legal and constitutional argument for why the charitable deduction is different from other credits and deductions. There is currently no written justification for the charitable deduction in tax law, unlike all other tax deductions. Without this justification, he cautioned, the charitable deduction will always be at risk by revenue-seeking government, threatening its neutrality in society.
Overall, the hearing made it apparent that the charitable deduction and philanthropy are very much on the minds of lawmakers as they look toward tax reform. The possibility of tax reform is becoming more imminent, and it has never been more important for us to continue our work with Congress to ensure the charitable deduction is protected.
Consider This +
An Active Week in Washington on the Charitable Deduction
By: Anne Urban, ACR
All is most certainly not quiet in Washington when it comes to taxes and the charitable community.
In a single week, we had the following:
- A marathon House Ways and Means Committee hearing on the charitable deduction. Over 40 witnesses (43 to be exact) testified for a hearing that ran seven hours long.
- A reintroduction of the “Buffett Rule” by Senate Democrats. Their proposal imposes a 30 percent minimum tax on those making more than $1 million and eliminates all deductions and credits for them EXCEPT for the charitable deduction.
- And finally, Ways and Means Chairman Camp announced the formation of 11 tax reform working groups. One of those groups is dedicated to “charitable/exempt organizations” and is due to be headed up by Congressmen Dave Reichert (R-WA) and John Lewis (D-GA). Reports from the working groups are due by tax day, April 15.
So what does this flurry of activity on the charitable sector mean going forward? Where do we stand in terms of tax reform? … keep reading >>
ACR Blog Roundup
For regular updates from our blog, follow us @ACReform on Twitter.
- A Simple Route to Major Deficit Reduction, Wall Street Journal
- A Smarter Charitable Deduction, Barron’s
- Congress Studies Charitable Contributions Tax Reform, Tax-News
- Ideas to Limit Charitable Deductions in Tax Code Overhaul Worrisome for Charities, BNA Daily Tax Report
- Charities Can Expect Tough Questions on Tax Breaks, Chronicle of Philanthropy
- Over 40 Nonprofit Officials and Experts to Testify on Charitable Deduction, Chronicle of Philanthropy
- Tax Talks Unnerve Some Utah Investors, Charities, Salt Lake Tribune
- Scholars and Charities Argue for Charitable Deduction for Non-Itemizers, Tax Notes
- Charitable Deduction a Key Giving Incentive, Star Telegram (Opinion: Vinsen Faris, Meals-on-Wheels of Johnson and Ellis Counties)
- In Defense of Charitable Tax Deductions, Reuters
- Charities: Cutting Deductions Only Hurts the Poor, CBN News
- Groups Push Against Limiting Deductions, Politico
- Video: Charitable Tax Deductions Expected to be a Budget Casualty, Nightly Business Report
- Video: Charitable Giving Coalition Testifies at House Ways & Means Hearing, CBN News
- Execs Testify In Harmony Regarding Tax Incentives, NonProfit Times
- Charities Beseech Congress to Preserve Donations Tax Break, Reuters
- Congress Starts Examining Changes To Charitable Tax Breaks, Financial Advisor
- Congress Weighs Changes to the Charitable Tax Benefit, Omaha.com
- Charities Say Don’t Change Tax Deductions, Cleburne Times-Review
Visit Charitable Deduction Central for news, opinion, background and updates on efforts to protect the charitable deduction.
- Restricting compensation of nonprofit board members is again a top legislative priority for Attorney General Martha Coakley. Legislation has been reintroduced that would prohibit compensation of nonprofit board members without prior approval of the Attorney General’s Office.
- A bill has been introduced (S. 1486) to establish a “permanent interagency coordinating group” to study and make recommendations to improve the impact, efficiency, and accountability of the government-nonprofit partnership.
Hawaii: The Abercrombie Administration has reconsidered its support for limiting deductions on charitable gifts recently testifying in support of a bill (Senate Bill 1091) advancing through the legislature that would remove charitable contributions from the cap on itemized tax deductions imposed in 2011.
Pennsylvania: The Senate is considering a proposed bill (Senate Bill 4) to limit the ability of Pennsylvania municipalities to challenge the tax-exempt status of charities and nonprofits and vest sole authority to establish criteria for a tax exemption with the Legislature.
California: A new bill would strip tax exemptions of youth groups that bar membership based on sexual orientation or gender identity. Also see: Proposed Bill in California Targets Scouts Over Gay Ban
March 19, 2013
ACR Summit for Leaders
Featured programming of Foundations on the Hill 2013
8:00 – 11:00 a.m.
2012 was like no other year for the charitable community. The sector faced the most significant threats to charitable giving in recent memory. But the battle is not over for the charitable deduction; Washington is gearing up for an even greater fight over the next few months.
The ACR Summit for Leaders will provide an insider’s look at the political landscape for. Experts will talk with us about future battles over the charitable deduction, troubling issues flying under the radar in states, and lessons learned from the fiscal cliff and how they can be used for the future.
It is more important than ever that foundation executives, nonprofit leaders, and others interested in public policy join us for the ACR Summit for Leaders to learn about what you can do to protect charity.
With tax reform on the horizon, and the pressing need for deficit reduction, we expect 2013 to be a critical year for our sector. In this discussion, Congressional staff will provide an insider’s look at the legislative landscape on Capitol Hill for 2013 and what issues could impact the philanthropic community.
Hot State Issues
State and local governments are under increased budget pressure exacerbated by recent, and likely further, federal spending cuts. In many cases, states are curtailing tax breaks to raise more revenue, raising tax rates and fees, and are cutting their own spending. This panel will identify some of these trends.
Lessons Learned from the Fiscal Cliff
Even though Congress narrowly averted the fiscal cliff just a few months ago, the first half of this year is peppered with more federal budget deadlines. In December, we met with more than 125 lawmakers, along with other leaders of the Charitable Giving Coalition, to relay our message on the value of charitable giving incentives to policymakers. By explaining why our sector is different and the charitable deduction is unique, we kept direct cuts, caps, and limits to the charitable deduction at bay. We also utilized a successful multi-pronged media strategy to strengthen our message to lawmakers back home and in communities across the country.
For the next round, the stakes are even higher and both sides have already dug in. Tax deductions and credits are attracting more and more attention. What lessons from the fiscal cliff debate can we use going forward to protect the charitable deduction? This panel will explore all of these options.
Joint panel with ACR, Council on Foundations and the Forum of Regional Associations of Grantmakers
Topic to be announced soon.
Speakers will be announced soon.
New for 2013
The Alliance for Charitable Reform, the Council on Foundations and the Forum of Regional Associations of Grantmakers are co-sponsoring Foundations on the Hill (FOTH), an annual opportunity occurring March 19-20 for grantmakers and regional associations to meet with their federal lawmakers in Washington, D.C. The ACR Summit for Leaders will be part of FOTH’s programming. Visit www.foundationsonthehill.org to learn more.
(Note: Full FOTH program registration includes registration for the ACR Summit. All IRS recognized foundations and corporate giving programs are eligible to participate in FOTH events. Nonprofit organizations not eligible to participate in FOTH should select the “ACR Summit for Leaders Program only” option.)
Contact Patrice Lee at The Philanthropy Roundtable (email@example.com or 202.822.8333) with questions about the ACR Summit for Leaders.
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