Taxes Part 4: Why Have a Charitable Giving Tax Deduction?

Total charitable giving in the U.S. in 2009 was $303.75 billion (2.1% of Gross Domestic Product), according to Giving USA 2010. Of that figure, $251.21 billion (83% of the total) came from individuals. Clearly, individuals are the backbone of American philanthropy.

Many in the nonprofit sector believe, backed by some research studies, that charitable giving remains strong in the US in part because of the incentives offered by the Federal Government. This is the primary reason why many in the sector support the charitable gift tax deduction. It also is why many are concerned that the government might adopt one of the proposals for either eliminating, reducing, or replacing the charitable gift tax deduction.

The consensus that has emerged among a group of large nonprofit organizations is that the Federal Government should preserve giving incentives. Last year, an alliance of 23 nonprofit organizations and professional associations representing tens of thousands of charities sent a letter to President Obama urging him to reject any change to the charitable gift deduction.

The primary reason the consortium backs the charitable giving tax deduction is because the members believe it works to stimulate individual philanthropy. Conversely, the members wrote, “Limiting the value of the charitable deduction does the exact opposite and would fundamentally alter the tradition of charitable giving that has made America one the most generous nations in the world.” For a complete copy of the letter to President Obama and a list of signatories, click here.

Another reason to have a charitable gift deduction is cultural. It is important to have the Federal Government state that charitable giving is such an important duty of citizenship that the government encourages it through the giving incentive. Removing the deduction would send the exact opposite message.

In Canada and the UK, when parliament has contemplated actions impacting the charitable sector, government has engaged the sector in dialogue and both sides have worked closely together to achieve results in society’s best interest. This has been less the case in the US where the relationship has often been adversarial, according to some participants in the process. If the nonprofit sector and the Federal Government can work in concert to arrive at solutions to our challenges, I’m confident that we’ll end up in a reasonably good place. On the other hand, things could get ugly for the sector and society as a whole.

That’s what Michael Rosen says… What do you say?

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