Dec 3, 2010
Looking into the Crystal Ball: The Future of the Charitable Deduction
Consider this…
As the 111th Congress winds down –most likely with a whimper not a bang– it is worth looking ahead to the next Congress to see what’s on their agenda for the issues important to the charitable community. Let’s start with the charitable deduction.
Here is what we already know:
- President Obama’s last budget contained a 28 percent cap on itemized deductions, including the charitable deduction.
- The Senate Finance Committee toyed with yet another iteration of this proposal in the context of health care reform.
- Prior to the release of their deficit commission report, former Senator Al Simpson (R-WY) and former White House Chief of Staff Erskine Bowles posed three options that would, among other things, affect the charitable deduction. Option 1 would set a floor for the charitable deduction based on a taxpayer’s income (any amounts below the floor wouldn’t be deductible). Option 2 would eliminate the deduction altogether in exchange for lower tax rates. The third option would limit the deduction, absent a plan to overhaul the tax system by 2012.
- Earlier this week, Our Fiscal Security, a group of progressive institutions, released “Investing in America’s Economy.” Among other considerations their proposal would convert the charitable deduction into a 25 percent flat tax credit available to every taxpayer (non-itemizers as well as those with no tax liability).
- Recently, the Bipartisan Policy Center, a group chaired by former Senator Pete Domenici (R-NM) and former White House Budget Chair Alice Rivlin, went even further by proposing to convert the charitable deduction into a 15 percent credit as part of their tax reform plan. Read more about it here.
- Finally, on Monday of this week, writing in the New York Times, conservative economist Martin Feldstein called for an overall cap on tax deductions for individual taxpayers, saying that “individuals subject to the cap would not have any tax-driven incentives to do more of the capped activities.”
How worried should we be about this wave of proposals to cap or eliminate the charitable deduction? In the short term, not so much. But going forward, as the pressure to get control of an out-of-control budget deficit mounts, very much. When policymakers get serious about closing the budget gap, the proposals outlined above will be seen as road maps toward that end.