Deficit Plan Would Transform Charitable Contributions Regime

The Chronicle of Philanthropy and The New York Times report that the Bipartisan Policy Center’s Debt Reduction Task Force issued a report yesterday containing recommendations that extend farther than the spending cuts and tax proposals recommended by President Obama’s fiscal commission.  Of particular importance to the nonprofit sector is a proposal to virtually eliminate the charitable contributions deduction and replace it will a 15% tax credit that would go directly to the charity, not the taxpayer, from the Internal Revenue Service.  As the Task Force’s report explains:

Because the credits are universal, taxpayers will not have to file a tax return to claim them; rather than be reimbursed directly to taxpayers, the credits will go to the [charitable] institutions. Qualifying charities will apply to the Internal Revenue Service (IRS) for a matching grant to supplement contributions from taxpayers, so that for every $85 the taxpayer gives, the charity will receive another $15.

The Task Force’s report referred to the current itemized deductions regime as “perverse” because it provides the greatest benefit to higher-income taxpayers.  The report further states that revamping the current charitable contributions deduction “will greatly increase the number of taxpayers who receive a subsidy for charitable donations but will reduce the subsidy rate for upper-middle-income and upper-income taxpayers who itemize.”

NAM