Tax reform and the charitable deduction
Tax reform – as promised during last year’s campaign rhetoric – is topping the agenda in Congress as we head into spring and it poses both an opportunity and a threat to the nonprofit sector. Both were evident during a recent hearing on tax reform and the charitable deduction held in the U.S. House Ways and Means Committee. The opportunity came as more than 40 panelists testified about the incredible impacts of the nonprofit sector, which depends on charitable contributions of individuals, foundations and corporations to do their good work. The threat came in the numerous proposals to limit or do away with the charitable deduction that individuals who itemize their federal tax returns claim to reduce their tax bills.
The charitable deduction is at risk now because of sequestration – that automatic cut of federal spending that looms – and because elected officials are increasingly viewing the charitable deduction as just another tax expenditure, like so many others included in the federal tax code, including deductions for mortgage interest and state/local taxes paid. There’s a big difference in these different deductions, because the charitable deduction is the sole such deduction from which the individual receives nothing tangible in return. But it’s still on the table as both House and Senate tackle tax reform in coming months.
You might think – like others – that it’s only the super wealthy who take advantage of the charitable deduction. However, research that we present in our Ohio Gives report shows a very different picture. First, individual Ohioans donated a whopping $5 billion to charities in 2010 (that’s the latest year reported by the IRS). And, that number doesn’t represent all of the donations given by Ohioans – it’s only the amount that the one-quarter of Ohioans (1.33 million taxpayers) reported on their itemized tax returns. We have no way of knowing what the real total of charitable giving is by individuals, we have only the IRS figures to provide a snapshot of some of the giving.
Here’s what else is surprising about our state’s giving: Ohioans at virtually every income level report making charitable contributions. Of those reporting donations, as this figure shows, one-quarter had income less than $50,000 a year and this group collectively gave over $637 MILLLION to charities!
If you donate to charity – whether it’s by dropping cash in the church collection plate or by writing checks to your alma mater or local foodbank – you should care about what’s going on in this debate. Ohio has two representatives on Ways and Means, Representatives, Pat Tiberi and Jim Renacci, and both our senators serve on the Senate Finance Committee that is also tackling tax reform. They’re hearing from us here at Philanthropy Ohio; we hope they’ll hear from you, too.