Is the Charitable Deduction Death or Growth to the Sector

by Gary Snyder

I am very confused as to the effects of a change in the charitable deduction…no matter what form it takes. Here are three arguments that further cloud the outcomes and my judgment.

The Independent Sector, a national coalition that suggest that it represents the charitable sector, advocates that the changes in the charitable deduction’s impact could range from decreasing the value of the charitable deduction to effectively eliminating it entirely for many taxpayers. One proposal would likely cause a more drastic decline in giving. 

In her February (2013) testimony, Diana Aviv, CEO and President of IS notes  “this effectively would have eliminated the charitable deduction for millions of taxpayers, and regardless of where an aggregate cap is set, even at $50,000 as has since been suggested, the result would force taxpayers to choose between the charitable deduction and those itemized deductions from which they directly benefit. For those taxpayers whose mortgage interest, local tax, and other similar deductions meet or exceed the cap, the charitable deduction will simply not be available to them altogether. And according to a 2012 Indiana University survey, more than two-thirds of high-net-worth donors said they would decrease their giving if they did not receive a deduction for donations. In fact, it has been estimated that with no charitable deduction at all, giving would decline by 36 percent. This would have resulted in a $78 billion decline in individual charitable giving in 2011.” She portrays a pretty dire prognosis.

David Wheeler Newman, Mitchell, Silberberg  & Knupp (Los Angeles) has a different take. In his article “the phaseout of itemized deductions under the American Taxpayer Relief Act of 2012 will not reduce the value of charitable contribution deductions for most taxpayers. It is critically important for gift planners to educate donors on this point, and to demonstrate that charitable contribution deductions will in most cases be unaffected by the new tax act.”

In the article “Pease” Provision in Fiscal Cliff Deal Does Not Discourage Charitable Giving and Leaves More Room for More Tax Expenditure Reform” Chye-Ching Huang points to a new paper from the Urban Institute and Tax Policy Center (TPC) that shows that tax changes will increase charitable giving, not reduce it. The authors estimate that a change may boost charitable giving by $3.3 billion or 1.3 percent. The increase results mainly from the rise in the top marginal rate income tax to 39.6, which raises the value of the tax deduction.

Are these mutually exclusive analyses? Where should we put our money on the Independent Sectors’ assessment or that of the other two?

It is a very interesting and topical issue and one that may have profound impact. I’d love to hear from you on your perspective.

Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Vermont Public Radio, Miami Herald, National Public Radio, Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), FOX2, ABC Spotlight on the News, WWJ Radio, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, The Chronicle of Philanthropy, St. Petersburg Times, B, USA Today Topics, Newsweek.com, Responsive Philanthropy Magazine, New York Times...and many more Nonprofits: On the Brink (2006) Silence: The Impending Threat to the Charitable Sector (2011)