Congress Is Talking About the Charitable Contribution Deduction

congressOn Valentine’s Day, during the U.S. House of Representatives Ways and Means Committee hearing to address the itemized deduction for charitable contributions under the Internal Revenue Code, over 40 witnesses provided testimony lasting seven hours. The hearing was described as being part of the Committee’s ongoing work on comprehensive tax reform, similar to the hearing held leading up to the 1986 Tax Reform Act, the last time Congress “reformed” the Internal Revenue Code.

Rather than focusing on any specific legislative proposal, the Committee sought input from stakeholders on the importance of the charitable contribution deduction on the nonprofit community and the community at large.  The Committee also asked for suggestions for reform that would increase charitable giving.  Responses included extending the cutoff date to April 15th of the following year, allowing non-itemizers the charitable contribution deduction, and setting a minimum threshold on charitable contributions that would need to be met before becoming eligible for deduction. The Committee also discussed the substantiation and valuation measures for noncash contributions such as vehicle donations, enforcement of provisions on unrelated business income taxation, and incentives to encourage volunteering, such as an increased mileage reimbursement rate.

A witness representing the Business Coalition for Fair Competition suggested that Congress should examine the ways in which tax-exempt organizations currently compete with for-profit businesses, a topic often raised by those who believe some tax-exempt organizations compete unfairly with commercial businesses.  Adjusting the charitable contribution deduction could have dramatic effects on tax revenues, and it may be tempting for Congress to head down that path thinking those who give will continue to do so with or without benefit of the charitable contribution deduction.  Hopefully, Congress will remember the extent to which the tax-exempt organizations funded by charitable contributions relieve the burden that otherwise would fall on the federal government.  At the recently increased top federal rate of 39.6%, a dollar denied the charitable contribution deduction would bring less than 40 cents to the Treasury; should a donor decide not to contribute that dollar, the tax-exempt community loses a dollar.  The net effect is that those served by either the government or the tax-exempt community are out 60 cents.  That is probably not the intended result.

Contributed by Tim McCutcheon

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