Charitable-Deduction Change Could Discourage Donors

from The Chronicle of Philanthropy:

Changing the Charitable Deduction Could Discourage the Most-Generous Donors

With growing political consensus on the need to reduce the deficit, it is no longer a question of “if” the country will overhaul how it approaches taxing and spending; it is only a question of when and how we decide to put our nation’s fiscal house in order.

And that process is now raising a big question for every nonprofit in America – whether donors will be allowed the same tax benefits for charitable gifts in the future as they are today.

Members of Congress and the White House have floated several proposals for ways to change how our federal tax system treats charitable gifts, mortgage interest, and other itemized deductions.

… The deductibility of charitable gifts regardless of one’s tax rate – rich or poor – has been a time-tested component of the tax code that has survived innumerable challenges for nearly a century. Some support the deduction as a way to encourage charitable giving, while others believe that amounts voluntarily given to charity should be treated differently from income that people spend, save, or otherwise use for their own benefit – and should not be taxed like the income devoted to personal use.

Central to understanding this debate is one simple truth: Regardless of tax rates, it always costs money to make a charitable gift. That is why the tax deduction for charitable gifts is by no means the primary motivation for most donors when deciding to make donations. That being said, limits on charitable deductions can increase the cost of gifts and can cause donors to change the amount and timing of their gifts.