ACR Blog
Charitable Deduction | Federal | Nonprofit Issues
May 10, 2013
A clean slate for tax reform?
Yesterday’s NPR interview with House Ways and Means Chair Rep. Dave Camp (R-MI) and Senate Finance Committee Chair Sen. Max Baucus (D-MT) painted a stark picture of their vision of comprehensive tax reform. Scratch that – there was no paint. What we were shown was an empty canvas. In Chairman Camp’s words, “We take a blank piece of paper and start over.”
So what does this mean for the charitable donor? For the nonprofit organizations that provide critical services, educational enrichment, and spiritual fulfillment? For the millions of Americans who each and every day receive hospital care, attend a Bible study group, visit a museum, drop a child at a day-care center, check out a library book, take a class at a community college, bring home a bag of food from a local food pantry, and learn English from a volunteer tutor?
It means simply that nothing is guaranteed; that we can’t take the charitable deduction for granted; that despite the lobby days, the calls and letters, the op-eds, the clear evidence that capping the deduction will hurt our communities, the fight is not over. Sen. Baucus made it clear: “When we start from scratch, start from no deductions, no credits, no exclusions, that puts the burden on them - that is, those who want those provisions - to state a better case as to why they should be in.”
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May 3, 2013
Chances of Tax Reform Just Went Up
Consider This
In news that surprised much of official Washington last week, Max Baucus, the senior Senator from Montana, announced that after 35 years in Congress, he would not be seeking reelection in 2014. In tax world, that news wasn’t just surprising, it hit like a thunderbolt, given that the Democratic Senator is also Chairman of the Senate Finance Committee.
So what does that mean for tax reform? We’re pretty sure it means the chances of tax reform have just gone up – maybe not by a whole lot, but they’ve almost certainly increased. With a potentially tough election off the table, the Senator is freed up to pursue tax reform and he has made it very clear that is what he intends to do. A very senior advisor to the Senator had simple advice for us on tax reform, “Get ready!”
With House Ways and Means Chairman Camp due to step down as Chair in 2014 and Senate Finance Committee Ranking Member Hatch not expected to seek reelection in 2018, there are a lot of unencumbered players in the tax reform debate. That bodes well for getting something done.
Chairman Baucus has made it clear he’d like to leave Congress with tax reform as one of his signature “legacy” items. Never underestimate the willingness of members of Congress to grant other members of Congress “legacy” legislation. Why? Because someday those willing members of Congress may retire themselves and they’d appreciate a legacy item or two.
We expect the pace on tax reform in the Senate to pick up in the next few months. Stay tuned.
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Charitable Deduction | Federal | Nonprofit Issues
Apr 19, 2013
What happens next in tax reform?
What happens next in tax reform? Well, for starters, the portal is officially closed.
What portal you might ask? That would be the online device the House Ways and Means Committee set up to take comments on tax reform. You can take a look here. As you can see, the comments range from lofty “big” ideas to more parochial “fixes.’ The comments are directed at the eleven tax reform working groups set up by Chairman Camp.
So what happens next? By early May, Chairman Camp has tasked the Joint Committee on Taxation to come up with a report that describes current law in each of the eleven areas and summarize the comments that came in as well as the information gathered by each of those working groups. One of those groups is charitable/exempt organizations and we’ve been working with that group to advance our views.
In this age of hyper-partisanship, Joint Tax is non-partisan. Put another way, they are a committee staffed by pure tax wonks. The information won’t be in the form of recommendations but it will still be interesting to see what they pick and choose to include about charitable organizations. That, in a sense, is putting options on the table.
Meanwhile, the Senate Finance Committee continues their closed door sessions on tax reform. We don’t expect them to get to tax exempt organizations and charitable giving until June or July. Stay tuned.
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Charitable Deduction | State | Nonprofit Issues
Apr 16, 2013
Charitable deductions vital to state, nation
Op-ed by Robert Collier, Lansing-State Journal
Rob Collier, president and CEO of the Council of Michigan Foundations, recently published an op-ed in the Lansing-State Journal on the important role the charitable deduction plays on both a state and national scale.
“So here is my ask,” wrote Collier. “The next time you see your state representative, state senator or a member of our congressional delegation, please remind him or her that:
• Individual givers and charitable foundations cannot replace government funding.
• The charitable tax deduction is not a loophole for the wealthy; the real beneficiaries are those served by the nonprofits that employ so many of our friends and neighbors.
• The charitable tax deduction is a model that other democracies around the world have modeled.”
You can access the full article here.
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Charitable Deduction | Federal | Federal Legislation | Nonprofit Issues
Apr 11, 2013
New Buffett Rule Would Result in Fewer Donations
The President’s FY14 Budget included the so-called Buffett Rule for the first time, although they formulated the idea and have supported it before in other measures. The provision is complicated so we wanted to give you a quick primer on understanding how it will work and what this might mean for charity.
The proposal calls for a phased-in 30% minimum tax on incomes beginning at $1 million. But, the President provides a carve-out for charitable gifts by providing a credit against the taxes owed. The kicker is that the credit is capped at 28%. Based on projections of how much a 28% cap would decrease giving, we believe this proposal would be equally harmful.
As background, last year in the FY2013 budget, the President called for a minimum tax on millionaires as one of his principles for tax reform, but did not specifically include a minimum tax in his overall budget. The Senate sprung to action and Senator Sheldon Whitehouse (D-RI) introduced the Paying a Fair Share Act, S. 2230 that imposed a 30% minimum tax on incomes of $1 million and above. Deductions and credits for this income threshold were eliminated, except for the charitable deduction, which was retained at the 30% rate. In short, S. 2230 kept the charitable deduction in its current form: the value of the deduction tethered to the tax rate.
We are all well aware that President Obama has repeatedly called for a 28% cap on all itemized deductions, including the charitable deduction, and in his FY2014 proposal, the President carries that over to the Buffett Rule. Now dubbed the “Fair Share Tax” (FST), President Obama keeps the 30% rate and keeps a charitable giving incentive, however, it is modified in a manner that would still reduce giving. According to the Treasury Department, which is responsible for writing the specifics of the budget’s tax provisions, the charitable credit “equals 28 percent of itemized charitable contributions allowed after the overall limitation on itemized deductions (so called Pease limitation).” In other words, the FST decouples – and lowers—the credit for charitable giving from the tax rate.
While this new Buffett Rule does recognize the unique nature of giving, it does so in a way that will result in fewer donations. On January 1st, this income group’s taxes have risen through increases in income tax rates, higher payroll taxes, the Pease limitation, hikes on investment income, and new health care taxes. This is the same group that last year – before the tax hikes – gave about 45 percent of the $180 billion in deductible charitable contributions, according to the Joint Committee on Taxation. At this critical time, the charitable sector cannot afford to forsake any charitable gifts, much less large gifts from our nation’s most generous donors. The Administration has taken a step in the right direction by recognizing the charitable deduction as different in their Buffett Rule, but with a 28% limitation still included for all taxpayers, the President continues to disappoint us.
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Charitable Deduction | Federal | Federal Legislation | Nonprofit Issues
Apr 10, 2013
File these comments in the “outrageous” basket
The charitable deduction is NOT a loophole
The Obama Administration today released its budget for the 2014 Fiscal Year. As expected, the budget included a 28% cap on itemized deductions, including the charitable giving deduction. In a televised statement in the Rose Garden announcing the budget’s release, President Obama offered stark words on why he thinks it’s time to close these itemized deductions, often referred to as “loopholes.” While he did not specifically mention the charitable deduction, this is what he did say:
“There’s no excuse to keep these loopholes open. They don’t serve an economic purpose, they don’t grow our economy, they don’t put people back to work. All they do is to allow folks who are already well-off and well-connected to game the system. if anyone thinks I’ll finish the job of deficit reduction on the backs of middle class families or through spending cuts alone that actually hurt our economy short term, they should think again.”
While we understand there may be parts of the tax code that need to be cleaned up, the charitable deduction serves an economic and social purpose that is different from any other itemized deduction, and it shouldn’t be lumped in with other so-called “loopholes.” Loopholes are provisions that may be exploited in ways that Congress did not intend. The charitable deduction was put into the tax code intentionally by Congress because it wanted to continue America’s tradition of giving and set aside an individual’s income given to charity. The charitable deduction offers badly needed charity to exactly those that need a helping hand from neighbors, communities and strangers. Additionally, the charitable sector itself employs 10% of the US workforce . Cutting, capping or limiting the deduction, as President Obama has repeatedly proposed, will hurt this sector of our economy while it simultaneously hurts those who benefit from its services. Reducing the nonprofit workforce will also greatly diminish its ability to leverage volunteer hours that are almost impossible to calculate in their value to our communities.
It is unfair, cynical, and bordering on outrageous to frame the charitable deduction as a way for the “well-connected” to “game the system.” It is not a benefit for the wealthy, but rather an incentive for those of all income brackets to contribute. In fact, the Nonprofit Times recently reported that in 2011, by far, the largest categories filing for the charitable deduction were those with adjusted gross income (AGI) of $50,000 to $100,000, with 13.87 million filed, or 36 percent of those itemized returns, followed by those in the $100,000 to $200,000 category, with 11.086 million, or 29 percent. Now is not the time to punish those in our society who need a helping hand and those who wish to contribute to the work.
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Charitable Deduction | Nonprofit Issues
Apr 5, 2013
Consider This: Does the President have an Appetite for Less Giving?
President’s Obama’s budget is expected to be released next week, on April 10. So what do we expect that budget to contain on taxes and how might that impact charitable giving? More of the same or breaking new ground?
Most prognosticators expect more of the same. “I don’t expect anything groundbreaking or new” says Curtis Dubay with the Heritage Foundation.
We tend to agree, and indeed, reports this morning seem to confirm this. Each year, President Obama has proposed a 28% cap on itemized deductions, including the charitable deduction. But the interesting thing is the underlying fundamentals on some of the President’s proposals have changed. The top tax rate used to be 35%. Under the fiscal cliff deal struck earlier this year, that top rate floated up to 39.6% and several other taxes were also increased. So the seven point gap between 28% and 35% has now widened to more than an eleven point gap between 28% and 39.6%, directly further reducing the value of the deduction.
Will the President’s budget take that into account somehow? Could the President change his mind and exclude donations to charity from that cap this year? We don’t know, but all signs point to more of the same. But the negative effect on the charitable deduction will almost certainly be intensified if it is indeed included. It is estimated that charitable giving would drop by at least $5.6 billion a year with the 28% cap and a top rate of 35%. That amount equals the entire budgets of the Red Cross, Goodwill, YMCA, Habitat for Humanity, Boys and Girls Clubs, Catholic Charities and the American Cancer Society, combined. Take the top rate to where it is now – 39.6% – and that number gets worse – a lot worse. A 28% cap would take away nearly one-third of the top taxpayer’s deductions. Giving to charity is the most optional of all deductions for most taxpayers. It is likely taxpayers will focus on maintaining the deductions for their mortgage or state and local taxes before they focus on giving more to charity. This isn’t just a matter of higher or lower taxes—this is a matter of those in need being able to receive the charitable services they need. If people give less to charity, our communities and those who need help will suffer.
We believe that is exactly the wrong direction to head.
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Charitable Deduction | State | State Legislation | Nonprofit Issues | State
Apr 3, 2013
Oregon legislature proposes bill to end charitable tax deduction
We talk a lot about the charitable deduction being at risk at the federal level. But lately, states have also been struggling to find revenue and have considered turning to cuts or even eliminating the charitable deduction. Take for example a new bill in Oregon that would do just that. Oregon House Speaker Tina Kotek (D-Portland) introduced a bill that would allegedly end most itemized tax deductions, including those allotted for charitable contributions (you can track the bill here.) As one might expect, this has created some unrest in Oregon’s charitable community.
News reports have highlighted this concern—nearly 30 nonprofits met with State Representative Jason Conger (R-Bend) on March 29 to voice their concerns, as reported by the Oregon Catalyst. “Ninety-five percent of our budget comes from private donations,” said Kristy Krugh, executive director of Ronald McDonald House of Central Oregon, in the article. “We could not exist if this bill inhibited, in any way, the ability for our community to give us the money and items we need to support our facility.”
ACR believes we should be doing more to encourage giving, not less and we share Krugh’s sentiment. The charitable deduction is one way we encourage more giving and therefore should remain in place. Donations allow charitable organizations to prosper and operate with efficiency and success, providing more services for those in need. Rep. Conger has vowed to fight the bill in the Legislature.
As situations like the one in Oregon arise, we will keep you posted. For more information on the charitable deduction, visit our website.
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Mar 26, 2013
The Philanthropy Roundtable Publishes New Book on Transparency in Philanthropy
We are excited to announce the debut of John Tyler’s second monograph of the Principles of Philanthropy series, Transparency in Philanthropy. Transparency and calls for organizations to release more information has been a subject of increased focus recently. This new book focuses on the important issues that charitable organizations face when planning transparent strategies and urges nonprofits and foundations to carefully think about what works best for their organization and stakeholders.
Private foundations are obligated to provide certain types of transparency through tax laws. Transparency does not currently exist in a legal context as a means to assess organizational effectiveness. Yet, taking these requirements to the next level could hinder what many charitable organizations are working to accomplish by expanding the legal jurisdiction of transparency requirements. So why should foundations be immune to the “transparency standard” like that placed on government and for-profit entities? It’s simple. Different levels of transparency are imposed on different types of institutions depending on the purposes these entities serve. Tyler argues that philanthropic organizations do not exercise the same powers over citizens as our government does, thus should not be held to the same standards. Transparency is not an end, but a tool to reach an end. The current Tax Code is sufficient to ensure these organizations are using their assets for charitable purposes.
The book also discusses, that as private organizations, what should be required to prove what it’s doing to provide a “public benefit” or “social good?” Is there but one definition of a social good? What should be encouraged rather than required? How can effectiveness be measured in such a diverse sector? While these questions to be answered by politicians in Washington, it could be argued that this protocol would quickly become a means to pursue interests only beneficial to the governing power at the time. Would this allow for the ruling body to micro-manage foundations, say, through replacing staff members?
However, Tyler writes, organizations should consider tools that may increase their transparency and provide more information to their stakeholders, like board members and donors. Some organizations may feel that a more informed body of stakeholders will improve their work and may also create a better culture of buy-in from those stakeholders. Rather than a one-sized fits all approach, this method of assessing transparency needs will allow organizations the flexibility to meet the demands of their stakeholders and make the best decisions for that individual organization. The book provides a great checklist (download the Companion Guide) of things an organization should think about when planning transparency strategies and will help readers begin thinking about what works best for their organization.
Effectiveness is not something that can be defined in black or white, nor can it be objectively viewed with greater transparency as some claim. Tyler’s new book discusses this and much more and we look forward to talking more about it this month.
For a shortened version of the book, download our Companion Guide here. For the full book, click here or email us and we will email you a hard copy free of charge.
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Charitable Deduction | Federal | Nonprofit Issues
Mar 19, 2013
Panel 3: Lessons Learned from the Fiscal Cliff for the Charitable Sector
The final panel of the ACR Summit for Leaders was heavy on reflections from the recent fiscal cliff battle and even heavier on advice for the challenges ahead over the next few months in Congress.
Sue Santa, senior vice president for public policy and legal affairs at the Council on Foundations, opened the panel describing how the charitable sector moved from obscurity to the spotlight in a matter of months last fall because of the concerted efforts the Charitable Giving Coalition, an organization of over fifty organizations including ACR dedicated to preserving the charitable deduction. The Coalition was even named one of five leaders that will make an impact in public policy in 2013 by the Chronicle of Philanthropy. How? By better understanding our issue, our audience and boldly saying we are different.
Gloria Johnson-Cusack, executive director of Leadership 18, discussed how the Charitable Giving Coalition or any coalition can successfully advance its cause. She highlighted that diversity is our strength and explained that by planning strategically and executing in unison the Coalition succeeded in preserving the charitable deduction in its current form during fiscal cliff negotiations.
For Brian Flahaven, director of legislative, foundation and recognition programs for the Council for Advancement and Support of Education (CASE), humanizing the impact of the charitable deduction and emphasizing that the burden of policy changes falls on those we serve was a new tactic that served us well in our messaging.
Sandra Swirski, executive director of ACR, also hit on the point that we were on message and stayed on message despite efforts to try to fragment the sector by the Administration and Congress. She noted that it will be even more important that those in the charitable community do this as we march toward tax reform. The battle during tax reform could be even more difficult than the dangers were during the fiscal cliff.
Finally Alison Hawkins, director of external affairs at The Philanthropy Roundtable, used eye-catching national headlines from press last December to remind the audience that Members of Congress read their local, regional and national newspapers daily so media engagement is a must.
All of these strategies and tactics will continue to serve the charitable community well going into the flurry of policy battles ahead for Congress.
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