As President Barack Obama and Congress work to solve the country's budget problems before the fiscal cliff, they are considering caps or cuts to the charitable tax deduction. The tax benefit has been around for 100 years, and allows individuals to receive a tax break for a percentage of their donations to charity in a given year.
Nonprofits argue that the tax break is essential in allowing them to maintain their services, because people are encouraged to give when they receive the tax break as a result. They say eliminating the tax benefit will lead to a drop in donations, which will jeopardize the services nonprofits are able to provide. Especially during the economy's slow recovery from the recession and other government cutbacks, they say people are in more need than ever of programs supported by charitable dollars.
Writing for U.S. News, United Way Worldwide President and CEO Brian Gallagher and Catholic Charities USA President Father Larry Snyder argue that cutting back the tax benefit now is bad timing and bad logic:
This independent, nonprofit infrastructure and long-standing experience in meeting community needs is invaluable. Last year, Americans gave nearly $300 billion to support crucial programs and services, from food pantries and medical research to youth programs and seed grants to start new businesses.
Elected leaders may believe the charitable deduction is an easy mark without a large contingent of lobbyists. But the charitable deduction is different than other itemized deductions. It encourages giving, rewards a selfless act, and helps raise more for charities than would have otherwise been possible. Data suggests that for every dollar a donor gets in tax relief, the public typically receives $3 of benefit. No other tax provision generates that kind of positive public impact.
Yet those looking to reduce the budget deficit say lowering or eliminating the tax credit will keep needed revenue in the hands of the government and make a sizeable contribution to reducing national debt. They say that the tax break was created to encourage charitable giving, but there is no conclusive proof that it actually achieves that goal, or that eliminating it would discourage giving. Former president of the California Community Foundation, Jack Shakely said that there is no evidence that giving will go down if the tax benefit is reduced:
According to data collected by the Giving USA Foundation, charitable donations over the last 25 years have remained solid as a rock, hovering between 1.7% and 1.95% of personal income year in and year out. If giving didn't decrease when rates went from 70% to 35%, why would it go down by lowering the rate to 28%?
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