Frequently Asked Questions

Below are several questions and answers to help better understand the importance of charitable giving, the value and impact of the charitable deduction and what is at stake if caps or limits are imposed on this 100-year-0ld tradition to encourage giving.

A. What is the Charitable Giving Coalition?

 

A. Since 2009, the Charitable Giving Coalition has been working to avert any caps or limits that would further diminish charitable giving in America. With the 100-year-old charitable tax deduction threatened like never before, the diverse group of more than 60 nonprofits, foundations and charitable organizations is unified like never before. Earlier this year, the Coalition was singled out by the Chronicle of Philanthropy as one of five people or organizations in the nonprofit sector that will influence public policy in 2013. 

To ensure that the Coalition continues to be a strong voice for the nonprofit and charitable sectors and protecting charitable giving, its members are focusing on direct outreach to members of Congress, stakeholders and the media. Additionally, the Coalition provides support for local members and partners to make a clear, compelling case about what is at stake in our communities if lawmakers tamper with the charitable deduction. 

The Charitable Giving Coalition membership includes more than 60 diverse nonprofit, charitable and other organizations, such as United Way Worldwide, Catholic Charities USA, the American Red Cross, the American Council on Education, the American Institute for Cancer Research, Jewish Federations of North America, the Association of Fundraising Professionals, Independent Sector, the Council on Foundations, The Philanthropy Roundtable and more. 

B. What is the charitable deduction and why is it important?

 

A. From healing and educating to enriching lives through the arts to feeding the hungry and

providing relief in times of crisis, the charitable sector is inextricably linked to our communities.

The charitable deduction is different than other itemized deductions because it encourages individuals to give away a portion of their income to benefit others in need. It rewards a selfless act and it encourages donors to give more to charities than they otherwise would have given.

According to Giving USA, in 2011 Americans gave nearly $300 billion to support charitable causes, much of which is claimed as a charitable tax deduction. A calculation of the charitable deduction indicates that for every $1 a donor can claim for their donation, the public receives approximately $3 of benefit. It is unlikely that any other tax provision generates that kind of positive public impact.

C. Why is there such urgency surrounding the charitable deduction issue right now?

A. Elected leaders in Washington, D.C. are considering limits or caps on the value of the charitable deduction to address our nation’s fiscal crisis. 

We appreciate that there are significant decisions ahead to address our fiscal challenges. But, tampering with the 100-year-old charitable deduction is not a viable solution. Such a move would spell disaster for the vital programs and services of thousands of charitable organizations and the millions of Americans who rely on them each day.

For example, if the proposed 28 percent cap included in President Obama’s Administration’s FY 2014 Budget is enacted, donations to the nonprofit sector could decline by more than $5.6 billions per year. That is more than the annual operating budgets of the American Red Cross; Goodwill Industries International, Inc.; Habitat for Humanity, the Boys & Girls Clubs of America; Catholic Charities USA; and the American Cancer Society combined. These estimates are based upon the previous top marginal tax rate of 35 percent. The actual loss in charitable contributions could be worse in light of the new 39.6 percent tax rate.

While no policymaker intends to undermine charities, we know major decisions about a range of issues may be made very quickly behind closed doors in the current legislative environment.

Nonprofits and charitable organizations are unified like never before to make sure lawmakers clearly understand that giving will go down significantly if you unravel the existing policy that incentivizes people to support communities.

Nonprofits and those they serve need more support, not less, particularly as local, state and federal budgets and nonprofits continue to suffer the consequences of America’s recession – increased demand for services with significantly fewer resources to get the job done. 

D. Is protecting the charitable deduction more important than protecting other deductions, like the mortgage deduction?

A. These deductions are all important to Americans. It’s important to note that the charitable deduction is a unique tax benefit. It encourages individuals to give away a portion of their income without getting anything back. This makes it different from other tax benefits, which encourage individuals to spend or save more for themselves.

For example, under one idea to cap the value of itemized deductions at $17,000, people would have no room left for a charitable tax deduction after using other deductions. Consider this analysis by the National Association of Home Builders, the average married, joint-filing taxpayer who itemized in 2009 claimed $20,464 in itemized deductions:

  • $10,365 of which was consumed by deductions for home mortgage interest
  • $3,667 for state and local income taxes
  • $3,287 for real estate taxes 

Total: $17,329

E. Is the charitable deduction more important than other tax policies affecting charitable giving, like the IRA rollover or excise taxes that foundations have to pay?

A. All incentives that encourage giving are an important part of nurturing a strong philanthropic sector, which is vital for a faster, sustainable economic recovery. The proposals to address the IRA rollover and the excise tax issues would help make it easier for Americans to give and foundations to serve their communities. But, the charitable deduction is an immediate concern. Congress is considering caps or limits on the deduction right now.

Congress and the Administration must recognize what is at stake: crucial programs and services, from food pantries and medical research to youth programs and seed grants to start new businesses. That’s why the coalition aims to pierce the “inside-the-beltway” bubble with a dose of reality from thousands of communities outside the beltway.

F. How do you know Americans really want the charitable deduction?

A. Americans understand the value of the charitable deduction in our communities. According to the United Way, nearly 80 percent of Americans believe reducing or eliminating the charitable tax deduction would have a negative impact on charities and the people they serve.

Of those who indicate they would reduce charitable giving, the majority (62 percent) say they would have to reduce their contributions by a significant amount – by 25 percent or more. Two out of every three Americans (67 percent) are opposed to reducing the charitable tax deduction. According to Dunham + Company, 75 percent of Americans say they value the charitable deduction as it currently stands.

G. Every sector is going to have to sacrifice something to solve the debt crisis. Why should the charitable deduction be exempt?

A. Limiting or doing away with the charitable deduction at a time when people are still reeling from the recession and facing government cutbacks simply makes no sense. It’s not a way to avoid the budget crisis. Such a move would redirect vital charitable dollars to plug the federal deficit, reducing donations to nonprofits by billions of dollars and cutting or eliminating vital services for millions of people. 

H. The fiscal cliff deal spared the charitable deduction, right? So, crisis averted?

A. Not exactly. While a cap or limit was not established for all donors’ charitable contributions, the Pease provision adopted in January as part of the “fiscal cliff” agreement did place a limit on deductions for certain taxpayers. We are working to prevent charitable giving from being unraveled further.

I. Can’t nonprofit executives simply reduce their pay?

A. Like all sectors, nonprofits are making cutbacks to their budgets and staff. This issue relates to vital community services. Those who need most help will suffer the most at a time they can least afford it. There are millions of people who rely on crucial programs and services that nonprofits provide – from food pantries and medical research to youth programs and seed grants to start new businesses.

J. Does it really make a difference if donors get a smaller tax break and those dollars are shifted to the government? Wouldn’t the government be able to provide those resources more effectively?

A. Government plays an important role in providing key services. Yet, donors trust nonprofits most when it comes to effectively addressing community-level needs.  Much of the success and impact of nonprofits depends on the direct support they receive from donors. Shifting funds from the charitable sector to government is the wrong way to go when we know private donors continue to target their contributions to organizations that are meeting essential community needs.

It’s also important to note that for every dollar a donor gets in tax relief for his or her donation, the public typically receives three dollars of benefit. It’s unlikely any other tax provision generates that kind of positive public impact.

K. Isn’t the charitable deduction just a loophole for the wealthy? What’s the benefit to the middle class?

A. It’s faulty logic to stand behind the notion that the charitable tax deduction is a benefit for the wealthy and that it won’t be missed. If Congress approves caps or cuts to the charitable deduction – millions of the most needy people served by America’s nonprofit sector will be hurt the most. They will be hit with the double whammy of government cutbacks and decline in the support of organizations like the Red Cross, the Salvation Army, the Boys & Girls Club and the American Cancer Society.

The fact is that nonprofits and the individuals, families and communities who benefit from them rely on the generosity of donors at every income level. The charitable deduction is a means to ensure that we can more effectively care for those in need, keep libraries open, keep at-risk youth on the right track, help connect the jobless to employment opportunities and so much more. According to the United Way, the charitable deduction is used by people of varying income levels. The percent of people indicating they use the charitable deduction is the same for households with incomes between $50K-$100K; $100K-$150K; and $150K+.

L. Some argue that lowering the value of the charitable deduction won’t adversely impact giving. Is there really cause for concern if the charitable deduction is capped?

A. In 2011, individuals gave nearly $300 billion to support charitable causes, according to Giving USA. Any caps or limits on charitable giving will have a devastating impact on charities and nonprofits. If donors have less incentive to give to charities – donations will decline, impeding the important work nonprofits do for millions of people who rely on them. The fact is that those hit hardest by the economic downturn and unemployment will be hurt the most. 

For example, up to $5.6 billion in charitable giving would be lost each year if a cap proposed by the president is enacted. That is the equivalent of more than the annual operating budgets of Red Cross, Goodwill, the YMCA, Habitat for Humanity, the Boys and Girls Clubs, Catholic Charities and the American Cancer Society combined. Now is not the time to dismantle incentives to support the crucial work of the nonprofit sector – developing medications and technological advances, improving education and health, protecting the environment, creating jobs, enhancing the arts and culture. 

M. What exactly is the Pease provision and how does it impact the charitable deduction.

 

A. While the charitable deduction was preserved in the fiscal cliff agreement, the reinstated Pease limitation contained in the American Taxpayer Relief Act of 2012 has reduced the value of itemized deductions for certain taxpayers.

While it is too early to tell the full impact of this provision on charitable donations, we have already seen a disturbance in the timing of gifts on which charities rely. In 2003, 5.2 million taxpayers were affected by the Pease provision.

Approximately 60,000 taxpayers with $886 million in charitable deductions had more than half of their itemized deductions disallowed. That’s a significant, negative impact on support for the crucial work of nonprofits in our communities. We simply can’t afford to experiment further with incentives that encourage charitable contributions. 

N. Some propose establishing a hierarchy on the value of the charitable deduction and give preference for donations for education or health and other key human services over cultural or religious causes?

A. America’s strong tradition of giving is rooted in the opportunity for people to give to the causes that matter most to them. Cultural and religious institutions contribute to the very fabric of our communities from Portland, Maine to Portland, Oregon. We shouldn’t place such restrictions or conditions on generosity. 

O. There are a lot of proposals floating out there regarding the charitable deduction – from eliminating the deduction to capping it or limiting its value. If the coalition is forced to settle for one approach, which would it be?

A. The Coalition believes that any caps or limits on charitable giving will have a devastating impact on charities and nonprofits. If donors have less incentive to give to charities – donations will decline, impeding the important work nonprofits do for the millions of Americans who rely on them.

P. What the ‘Buffett Rule’ is and how it would impact the deduction?

A. The Buffett Rule is a tax plan proposed by President Barack Obama in 2011. The tax plan would impose a minimum tax rate of 30 percent on individuals making more than $1million a year while preserving the charitable deduction.