A host of witnesses Tuesday told the Senate Committee on Finance, led by Chairman Max Baucus (D-Mont.) that reducing or eliminating the tax deduction for charitable contributions would be a mistake that would harm ability of philanthropic groups to provide services to those most in need.
Witnesses who testified were Frank Sammartino, the Congressional Budget Office’s assistant director for tax analysis; Elder Dallin H. Oaks of the Church of Jesus Christ of Latter-day Saints; Dr. Eugene Steuerle, Richard B. Fisher chair and institute fellow at the Urban Institute in Washington, D.C.; Brian A. Gallagher, president and CEO, United Way Worldwide; and Roger Colinvaux, associate professor at the Catholic University of America Columbus School of Law.
Sammartino presented a report by the CBO that examined 11 proposals to modify or eliminate the charitable deduction. These fell into four categories: instituting a floor beneath which donations would not be deductible; allowing all taxpayers to claim the deduction, with or without a floor; replacing the deduction with a nonrefundable tax credit for all taxpayers equal to 25% of the donation, with or without a floor; and replacing the deduction with a nonrefundable tax credit for all taxpayers equal to 15% of the donation, with or without a floor.
Also at issue was the question of elimination of the deduction, on the premise that people would continue to give regardless.
Steuerle presented an analysis of how the tax code might be changed to raise revenues and at the same time exert the least amount of negative pressure on charitable giving. The analysis took into account the tax sensitivity of higher-income donors, and offered an above-the-line deduction with a 1.7% floor as a means of increasing revenue while essentially having a neutral effect on donors.
Gallagher, Colinvaux, and Oaks all argued strenuously against any reduction in, or drastic change to, the current charitable deduction, and pointed out that charities do much work that the government neither can nor should do.
Gallagher argued instead for an expansion of measures to encourage charitable giving, and put it in human terms when he enumerated the number of actions that could not be taken by the United Way should deductions fall. A 2.5% reduction in revenue, he said, “would result in 1.3 million fewer times that we can provide job training services for an unemployed worker, home care for an elderly citizen, service supportive housing for a single mother, or a mentor or tutor for an at-risk young person.”