Tax reform legislation proposed by the House and Senate would have devastating impacts on our nation’s charitable sector, greatly hindering the ability of nonprofits to meet the critical needs in our communities across the country. United Philanthropy Forum has already stated our deep concerns with the House proposal for tax reform released a few weeks ago, and we share many of the same concerns about the Senate tax reform proposal released last week.
The current versions of both the House and Senate tax reform bills would cause a loss of billions of dollars in charitable giving each year, by effectively shutting out all but the wealthiest Americans from using the charitable deduction. Both bills would double the standard deduction while keeping the charitable deduction in its current form, which would prevent 95% of taxpayers from taking advantage of the charitable deduction—a 100-year tradition in our country to incentivize giving to charity. This change would result in a loss of $13.1 billion in charitable contributions each year, according to a recent study by the Indiana University Lilly Family School of Philanthropy. A Joint Committee on Taxation memo released last week confirmed the harmful impact of this provision, determining that the charitable gifts that taxpayers deduct would drop by nearly $100 billion in a single year.
These figures don’t even include the additional losses in giving that would result from both the House and Senate proposals to make significant changes to the estate tax, which serves as an incentive for wealthy individuals to give more of their estate to charity. A Tax Policy Center study estimated that a repeal of the estate tax would reduce charitable bequests by 22 percent to 37 percent, or a loss in charitable gifts of between $3.6 billion and $6 billion per year—that’s on top of the $13.1 billion loss cited above.
Although the House and Senate bills claim to be about creating jobs, this drop in charitable giving would result in a loss of tens of thousands of nonprofit jobs. People sometimes forget that the nonprofit sector is our country’s third-largest workforce, employing 10% of all workers (that's 11.4 million jobs).
If Congress is truly interested in preserving the charitable deduction, as it says it is, it needs to make the charitable deduction available to all Americans—not just the dwindling number of taxpayers who will be itemizing their tax returns as a result of this bill. A “universal” charitable deduction will help make up for the losses in charitable giving caused by the House and Senate tax bills, and will give equal value to the charitable donations of all Americans—including the middle-class families that the bills’ sponsors say they want to help.
In a promising development, Senators Wyden and Stabenow have introduced an amendment to the Senate bill that would provide for a universal charitable deduction, allowing taxpayers who do not itemize their deductions to take an above-the-line deduction for charitable contributions, subject to limitations. Although the Forum has concerns about some of these limitations, we are grateful for the amendment, which will help offset the losses in giving in the current versions of the legislation.
We are also pleased that the Senate bill rejects the House’s attempt to weaken or eliminate the Johnson Amendment, which for more than 60 years has kept partisan politics out of nonprofits and philanthropy. The Forum strongly opposes any weakening of the Johnson Amendment, which would greatly harm the charitable sector’s trusted and essential space in our civil society and risk diverting dollars from charitable purposes to political purposes.
United Philanthropy Forum will continue to work side-by-side with our nonprofit and philanthropy colleagues to ensure that tax reform legislation does not harm the charitable sector and the many Americans helped by our nation’s charities every single day in every corner of the country.
President & CEO
United Philanthropy Forum
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