Scholars and Charities Argue for Charitable Deduction for Non-Itemizers

by Fred Stokeld, Tax Notes

FEBRUARY 15 - Witnesses at a February 14 House Ways and Means Committee hearing said they support extending the charitable contribution deduction to non-itemizers, but only for gifts exceeding a threshold amount.

C. Eugene Steuerle of the Urban Institute told the committee that a floor under the charitable deduction could be used to extend the deduction to non-itemizers but would not have much effect on charitable giving incentives.

Roger Colinvaux of the Columbus School of Law at the Catholic University of America agreed. “I think a floor is very important” because it would eliminate the need to verify small donations, he said.

Eugene Tempel, dean of the Indiana University School of Philanthropy, liked the idea of a non-itemizer deduction and said a floor would be better than a cap. Jan Masaoka of the California Association of Nonprofits said a floor is worth considering because it would reduce giving incentives only for taxpayers who make small donations, she added.

Committee member Linda T. Sanchez, D-Calif., said there is a big disparity between the number of taxpayers who give to charity and those who can claim a charitable deduction. “I think it’s time to think about expanding access” to the deduction, she said.


Thumbs Down on Limits

Many of the witnesses opposed limiting the deduction to raise revenue, arguing that charitable giving would suffer. Diana Aviv, president and CEO of Independent Sector, said reducing the value of the deduction from 35 percent to 28 percent, as the Obama administration has proposed, would lead to a drastic decline in giving. Brian Gallagher of United Way Worldwide said if the incentive to give is reduced, donors will reduce the size of their gifts. (Prior coverage .)

“Congress should take action to encourage charitable giving rather than discourage individuals from giving to organizations that are making a real difference in our communities, thereby reducing the burdens on government as a result,” said Tim Delaney of the National Council of Nonprofits.

David Wills of the National Christian Foundation, speaking on behalf of the Alliance for Charitable Reform, said limiting the deduction would affect not just the amount of gifts but also their timing.

Committee member Jim McDermott, D-Wash., responding to criticism of the Obama proposal, said that during last year’s presidential campaign Republican nominee Mitt Romney proposed a dollar cap that would have decimated charitable giving. (Prior coverage .)

Committee ranking minority member Sander M. Levin, D-Mich., said Congress should be careful when looking at the charitable deduction and other deductions, and called for a study of the effects of the recently restored Clinton-era Pease limits on itemized deductions, which reduce the deductibility of itemized deductions by 3 percent of adjusted gross income.


Other Issues

Committee member Charles W. Boustany Jr., R-La., asked whether donations to domestic organizations should receive preferences over donations to organizations operating overseas, drawing a rebuke from McDermott, who said a lot of money is donated to organizations outside the United States that promote global health.

Colinvaux said there are a number of problems with the deduction for noncash contributions of property, such as high costs and complex rules. He recommended that Ways and Means review the deduction to determine whether its benefits exceed its costs.

Committee member Charles B. Rangel, D-N.Y., asked witnesses for figures on donations toward basic human needs such as healthcare and poverty alleviation, and wondered what incentives could be established to target donations to those needs.

Committee member Dave G. Reichert, R-Wash., wondered whether organizations like AARP, which sells for-profit insurance, should qualify for tax-exempt status.

Committee Chair Dave Camp, R-Mich., said the purpose of the hearing was to hear from the charitable community before considering proposals for tax reform.