There are a number of proposals for modifying or eliminating the charitable gift deduction that are currently being considered on Capitol Hill. One option comes from the Bipartisan Policy Center’s Task Force. The proposal calls for replacing the charitable gift deduction with a tax credit plan modeled after the United Kingdom’s Gift Aid system.
Instead of a donor receiving a tax deduction for making a charitable donation, he or she would receive a tax credit. Discussions have included a credit up to 15% of the gift. However, instead of the donor receiving a direct benefit, it would be the qualifying charity that receives the benefit. Here’s how it would work: A donor makes a contribution of $100. Upon submitting the necessary paperwork, the Federal Government would send the charity a check for $15. If a donor wants the charity to only receive $100 or wants to lower the “cost” of making such a contribution, he or she could contribute $87 to the charity knowing the government would contribute an additional $13.05.
Unfortunately, such a system would require the Federal Government to build yet another bureaucracy to handle the processing. The cost to the government of additional staffing, equipment, and payment processing will not be insignificant. There would also be a cost burden placed on the nonprofit sector. Organizations would need to spend money educating donors and then monitoring and following up to make sure that donors file the proper paperwork and that the government processes that paperwork without error. This is all an unnecessary set of costs.
The other problem with such a system is that it would require a greater degree of action by donors. First, donors would need to calculate their giving combined with the government giving to figure out how much they’re really donating instead of simply writing a check for $100; under the tax credit system, the donor would have to determine whether they want to donate $100 themselves or just $87, for example. In addition, the donor would have to file some sort of paperwork, along with documentation, to prove to the government that a tax-credit grant should be made to the charity. Many donors are likely to skip this step or do it incorrectly.
Even a Task Force member suggested in The Chronicle of Philanthropy that there is risk. Leonard Burman, a professor at Syracuse University, admits that the possible impact is unclear and could reduce major donor giving, particularly for education and the arts. Yet, he still endorses this proposal which he says has been modeled after Gift Aid in the U.K.
So, what do the Brits have to say on the subject of this proposal? Roberta d’Eustachio, the Chief of Staff to the British Government’s Ambassador for Philanthropy said, “This is the worst idea I ever heard. While charities and nonprofits get money from the government, not everybody that could ‘take up’ the Gift Aid option, does. Why? Because they have to tick a box, they have to do something extra in the bureaucracy and people just don’t do it. … This is a disaster waiting to happen.”
The tax credit plan would be more costly than what we have now, more cumbersome, less donor friendly, and likely to result in less giving. The one thing this plan would effectively do is make folks, particularly charities, more beholden to the Federal Government. D’Eustachio says, “The charities can also begin to lobby for ‘more’ money as they have done here in Britain…. It’s $15 of the $100 today, tomorrow they will want more, and pretty soon the charities are having more of a relationship with government than they are with the donor.”
So, in its infinite wisdom, the Task Force is advancing a proposal modeled after the system in the U.K. that the British do not even endorse! That’s What Michael Rosen Says… What do you say?