Special Report: Charitable Giving Deduction in the Crosshairs, Again

The US Senate Budget Committee has just released its FY 2014 Budget Resolution. On pages 65 and 66, the Democratic-controlled Committee asserts that the wealthy are unfairly benefiting from “tax expenditures.”

The Budget Committee calls on the Senate Finance Committee to reduce the deficit by limiting or reforming “unfair” tax breaks for the wealthy. The Committee specifically mentions itemized deductions with various options listed for limiting them (i.e.: a percentage cap, hard dollar cap, etc.). The charitable deduction is not exempted from these various proposals.

The Obama Administration has previously floated a similar proposal. You can read my analysis of that in my post: “Obama Plan Could Cost Nonprofit Sector $5.6 Billion a Year.” In short, limiting or eliminating the tax deduction for charitable giving is expected to have a significant, negative impact on giving.

Senate Democrats also seek to increase tax revenues by $975 billion over the next 10 years. Increasing the tax burden could be an additional drag on the economy. Slower economic growth would result in slower philanthropic growth thereby further impacting the nonprofit sector.

Budget negotiations are at an early stage. Therefore, it’s difficult to know what the outcome of those negotiations will be.

Now is the time for the nonprofit sector to be vigilant and engaged.

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


UPDATE (March 14, 2013): The Charitable Giving Coalition, chaired by the Association of Fundraising Professionals, has sent a letter to Sen. Patty Murray, Chairman of the US Senate Budget Committee, in response to the FY 2014 Budget Resolution. This letter is a must-read for anyone interested in the Federal budget and its impact on philanthropy. Michael Rosen Says… has obtained a copy of the letter which you can download: Charitable Giving Coalition Senate Budget Committee letter 3-14-13.


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8 Responses to “Special Report: Charitable Giving Deduction in the Crosshairs, Again”

  1. Thank you, Michael, for your accurate and insightful reporting on this topic. This is certainly a debate the nonprofit sector can and should have.

    • Steve, thank you for your positive feedback. It’s much appreciated.

      I recognize that the budget debate is a political minefield. I further recognize that the nonprofit sector is not a politically monolithic part of our society. Therefore, I have tried to side-step the political issues involved in the budget debate and, instead, encourage everyone to pay attention and engage in whatever way they are moved. The policies of the Federal government do impact philanthropy in complex ways. People who believe in philanthropy should consider advocating for policies friendly to philanthropy or, at the very least, should be aware of what is going on in Washington so they can prepare for the fallout from whatever policies are adopted. Burying one’s head in the sand is not a wise course of action.

  2. I’m not 100% convinced that this would harm charitable giving significantly, particularly with the smaller donors – BUT I don’t want to test the waters. It’s just a bad idea on many levels.

    • Eric, thank you for your comment. The tax policies of the Federal government do impact philanthropy and the nonprofit sector in complex, and sometimes contradictory, ways. Tax policy influences how some individuals donate and how much they give. Tax policy and spending plans can either promote economic growth (good for philanthropy) or slow economic growth (bad for philanthropy). Cuts in the Federal budget will likely mean cuts in government funding and contracts for the nonprofit sector. While the debate over the charitable giving deduction is important, it is just as important for us to pay attention to the overall budget discussion.

      As for your assertion that limiting the charitable tax deduction would have little or no impact on smaller donors, I suspect you’re quite correct. Smaller donors are not typically in the upper income brackets targeted by the new budget proposal. However, we need to keep in mind that, while fewer in number, wealthy donors contribute a massive amount to charity every year. I’d hate to see them encouraged to give less. Like you, I think the Budget Resolution is a bad idea on many levels.

  3. Michael,

    The reason that many of the affluent prefer to give to charities than pay taxes is because they see many organizations actually making a difference in society. They see the bloated bureaucracy of the Federal government as wasteful and ineffective, and they want some control where they put their support. I am not affluent, but I do share that opinion.

    The current administration would rather see the nonprofit sector go away and have government take over what it does. Unfortunately, there are some who are part of the call for this action. Organizations that have become dependent on government money, rather than make a case for their programs with donors, are an example. Another is the Chronicle of Philanthropy‘s Rick Cohen, who seems to call for more government support for the charitable sector and believes that charitable tax deductions should be eliminated.

    The larger the government grows and the more taxes taken from individuals, the less private support for nonprofit organizations there will be.

    • Richard, thank you for sharing your thoughts. Your opinion about why people would rather give to charity than simply pay taxes to the government is supported by focus group studies with donors in multiple countries including the USA.

      From the colonial period through to the present day, The roles of government and the nonprofit sector have changed back and forth. At times when government has taken greater responsibility for social programs, the private sector has reduced its engagement for a variety of reasons. When government has reduced its role, the private sector has filled the vacuum, often more efficiently. Marvin Olasky takes a detailed, well documented look at this phenomenon in his book The Tragedy of American Compassion.

      For anyone interested in learning more about the importance of a robust nonprofit sector to a democracy, I recommend reading my article about Brazil that appeared in AFP’s Advancing Philanthropy magazine: “Brazil–Two Countries Becoming One.


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