22 February 2013

An Active Week in Washington on the Charitable Deduction

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? Overall, the Ways and Means hearing cast the tax preferences for charity in a very favorable light. Carving the charitable deduction out of the Buffett Rule continues to be welcome news as it indicates that a good number of policymakers consider the deduction differently from all the other credits and deductions in the tax code. And, the creation of tax reform working groups is a way to propel the tax reform process forward, in a bipartisan way, with member buy-in. But, as always, there’s a caveat. Promises to completely defend the charitable deduction under any circumstance are few and far between. In a world of fiscal cliffs and hard choices, the charitable deduction is just at risk as all other tax provisions on the table this year.

Whether or not Chairman Camp succeeds in getting a tax reform bill through the House is an open question and whether our sector is protected in that exercise remains to be seen.