Special Report: CBO Issues Report on Charitable Deduction Options

The U.S. Congressional Budget Office has released a paper that examines various proposals for charitable giving tax deductions. Specifically, the CBO looked at 11 options for altering the current income tax treatment of charitable giving, which can be grouped into four categories:

    • Retaining the current deduction for itemizers but adding a floor.
    • Allowing all taxpayers to claim the deduction, with or without a floor.
    • Replacing the deduction with a nonrefundable credit for all taxpayers, equal to 25 percent of a taxpayer’s charitable donations, with or without a floor.
    • Replacing the deduction with a nonrefundable credit for all taxpayers, equal to 15 percent of a taxpayer’s charitable donations, with or without a floor.

You can download a PDF of a summary of the report here: Summary of CBO Tax Deduction Report.

You can download a PDF of the complete report here: CBO Report on Charitable Deduction Options.

You can read the article “Study Shows How Changes to the Tax Code Could Affect Giving,” from the May 31 issue of The Chronicle of Philanthropy, by clicking here.

As you review the report, you will see that the CBO has found that tax policy can have an impact on charitable giving. However, readers should remember that the greatest influencer of charitable giving is Gross Domestic Product. Giving has been consistently about two percent of GDP since records have been kept. Any government policy that encourages growth in GDP will lead to growth in charitable giving. Any government policy that slows GDP growth or causes a drop will also impact charitable giving in like fashion.

[This has been a Special Report. From time to time, I will provide Special Reports on important and/or breaking news items. My regular weekly post will appear tomorrow.]

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

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4 Comments to “Special Report: CBO Issues Report on Charitable Deduction Options”

  1. Michael,

    I’m in the midst of reading your recent book, in which, page after page, you impress me with rarely-articulated insights into donor perceptions. (And this particular curmudgeon isn’t easily impressed.)

    Then, inexplicably, in your blog, you imbibe something obviously hallucinogenic, and assert — not just a correlation — but a causal relationship between GDP and charitable giving. Can feeling flush tend to open the purse strings? Yeah, but, hey, toggling GDP to manipulate charitable giving? Kind of like cancer being the leading cause of statistics.

    Jeff Steele
    Michael J. Rosen Fan (really)

    • Jeff, thank you very much for your praise of my book, Donor-Centered Planned Gift Marketing. Because the praise came from you, I am particularly touched.

      Now, because I don’t want your blood pressure to spike, allow me to provide some clarification about my Special Report post:

      You’re quite correct. While there is a strong correlation between GDP and charitable giving, it has not yet been determined whether this is a causal relationship. By the way, Personal Income closely mirrors fluctuations in GDP. So again, there is a strong correlation between Personal Income and charitable giving. While a causal relationship may not yet have been proven, I feel fairly safe in claiming that if personal income rises, we will see a rise in giving.

      There are two primary ways to increase an individual’s personal income: 1) Without expanding the pie, you can allow folks to keep more of their money through lower tax rates or increased tax deductions. 2) The government can adopt policies that expand the pie resulting in an increase in GDP and Personal income. By the way, these two approaches are not mutually exclusive as some in the Obama Administration might want us to believe.

      Those in the nonprofit sector who have opposed the Obama Administration’s proposal to cap the charitable giving deduction believe that such a move will result in less individual philanthropy. The CBO report validates that fear. Capping the deduction has the effect of decreasing the amount of disposable personal income one has from which to give.

      On the other hand, if the deduction is capped, we might not necessarily see a drop in giving if GDP/Personal Income grow sufficiently. For example, if the Federal Government adopts a reduction in deductions, an increase in taxes, and a significant cut in spending, the economy might recover quite nicely with strong growth in GDP and Personal Income. This growth could be sufficient to offset any negative impact of the decrease in the charitable giving tax deduction. Of course, that scenario involves a large number of “ifs.”

      My post was not intended to advocate for any particular policy, related to the charitable giving deduction or anything else. I was simply pointing out that a) reducing the charitable giving tax deduction will indeed negatively impact philanthropy, and b) a bigger impact on the nonprofit sector could be felt by strong GDP and Personal Income growth. Conversely, a reduction in the deduction and no or modest GDP/Personal Income growth could make the future quite challenging for nonprofits.

      The nonprofit sector should advocate for government policies that increase philanthropy. Maintaining the current deduction policy will avoid a decrease in giving. Policies that grow GDP and Personal Income will be good for the nation and will also allow the nonprofit sector to see greater philanthropy.

      Does having more money make people more philanthropic? No. However, when philanthropists have more money, history teaches us that will give more.

      Jeff, as always, thank you for writing. I enjoy the opportunity to engage in thoughtful conversation with a friend.

  2. Michael,

    I actually agree with each of the individual points you made in your reply, I would just point out that they are truer on a MACRO level than in specific individual circumstances.

    A lot of ink is regularly devoted to mega gifts (esp. of the “transformative” variety), and I would just like to point out for readers that the factors at work in the gift planning process for the super-wealthy can be far different (obviously) from the norm, and even counterintuitive — personal income often plays virtually no role at all.

    Based upon 30+ years’ experience with this group of donors, I would be surprised if the proposed tax cap didn’t have an unfavorable — and disproportionate — effect on at least their PATTERN of giving.

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