Charitable deduction is indispensable but shouldn’t be sole motivation for giving
My husband and I tithe to our church, meaning we give 10 percent of our income. We also donate money to various charities.
Our giving results in a tax break because we itemize on our tax return.
Would we give less if we didn’t have the tax deduction? I’m confident we wouldn’t. We give because we believe it’s the right thing to do for folks who are fortunate enough to have money to give. Having the tax deduction is a bonus, but one that has never driven us to give more or less. I’m actually a bit turned off when a charity tries to persuade us to give by overly emphasizing the standard phrase, “Your donation is tax deductible.”
But having said this, many people are motivated by tax breaks. And some do give more because of the charitable deduction.
Our country is deeply in debt, and our leaders are struggling to find ways to balance the federal budget. We are facing a “fiscal cliff” — the expiration of the George W. Bush tax cuts, along with spending cuts — that could trigger another recession. One strategy that has been proposed to avoid the cliff is to reduce or eliminate the deduction for charitable donations.
In his 2013 budget, President Obama proposed capping the deduction for taxpayers earning more than $250,000 at 28 percent — even if they are in the 33 percent or 35 percent tax brackets. The president argues that most taxpayers don’t get the benefit of the deduction because they don’t itemize. And the tax break tends to benefit the wealthiest citizens the most.
The charitable deduction is a lucrative target, because “among the many tax expenditures that are in the federal tax code, the tax deduction for charitable contributions is among the largest in terms of its estimated revenue impact,” according to a research paper by Joseph J. Cordes, an economics professor at George Washington University. “The Joint Committee on Taxation (2011) has estimated the five-year revenue cost (from 2010-2014) at just under $246.1 billion, and the charitable deduction has routinely been among the top 10 to 15 federal tax expenditures in terms of its revenue cost.”
If the government caps the deduction, charitable organizations fear that Americans will cut back on their giving. Independent Sector, a coalition of nonprofit organizations, foundations and corporate giving programs, is lobbying to keep the charitable tax break unchanged. The group has a page on its Web site where people can send a form letter to their senators, representatives and the president in support of the deduction.
The Charitable Giving Coalition, which represents large nonprofit organizations, recently sent letters to Obama and congressional leaders urging them to preserve the deduction.
“America’s economic recovery requires a strong philanthropic sector, whose role as an investor in innovation and supporter of safety net services is more important than ever for a faster, sustainable economic recovery,” the group wrote. “This is particularly true as local, state and federal budgets decrease and nonprofits continue to suffer the consequences of America’s recession — increased demand for services with significantly fewer resources to get the job done. . . . As you can imagine, any cap or limitation on charitable deductions undermines charitable giving and would have long-lasting negative consequences.”
The group also argues that this tax break is different than other itemized deductions. “It rewards a selfless act, and it encourages taxpayers to give more to charities than they would otherwise have given.”
Regardless of household income, education, age, race or gender, people overwhelmingly support the deduction, according to a survey by Dunham+Company, a consulting firm for charitable organizations.
The company also found that 33 percent of donors said they would reduce their giving if the charitable deduction didn’t exist. The figure climbed among key giving groups, with 40 percent of donors ages 40 to 59 saying they would reduce their giving.
I find that statistic shameful. You should give with no expectation of a reward if it’s truly a selfless act.
Still, we can’t take the chance that much-needed funds going to worthwhile nonprofit organizations serving our communities would be reduced if the deduction is capped. Charitable donations help take up the slack from reduced government services and financial aid to people in need. That’s an economic benefit we can’t afford to mess with.
Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071, or email@example.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.