WASHINGTON—A proposal to limit charitable deductions would be devastating for churches, religious organizations and other nonprofits if adopted by the federal government, says a Southern Baptist church-state expert.
Leaders in both political parties have suggested further restricting charitable deductions for at least some Americans who itemize on their tax returns as a way of helping avert the “fiscal cliff” facing the country Jan. 1. Without congressional action, the tax cuts implemented under President George W. Bush will expire on that date, producing about $7 trillion in tax increases. At the same time, inaction will result in sequestration — automatic cuts to defense and non-defense spending of $55 billion each.
The idea of capping the charitable deduction “is as serious a threat to religious organizations as anything the federal government has done in recent decades,” said Richard Land, president of the Ethics & Religious Liberty Commission (ERLC).
“This would be catastrophic in its impact, particularly on those large gifts that many religious organizations, colleges, universities and ministries, as well as churches, depend upon for continuing operations,” Land told Baptist Press Thursday (Nov. 29). “Everything we know from past experience tells us if they cap deductions it will seriously erode charitable giving.”
In a Nov. 28 email alert, Land urged Southern Baptists and others to ask their members of Congress to oppose further limits on charitable deductions.
Enacting such restrictions would not only reduce giving to churches and charities but would harm services such organizations provide to the needy, said Land and other foes of capping such deductions.
“At a time of severe economic dislocation, when the people’s demand for the services of charitable institutions is particularly high, it would be extremely counterproductive and illogical to implement tax policies which would result in crippling cuts to the budgets of charitable institutions, rendering them far less able to help the most vulnerable in our society,” Land said in a Nov. 29 Baptist Press column.
A coalition of nonprofit organizations included the following in a Nov. 14 letter asking President Obama to maintain the current charitable deduction:
— The American public gains about $3 in benefit for each dollar a donor receives in tax relief for a contribution.
— Americans gave nearly $300 billion to charities in 2011, according to Giving USA, with much of that total deducted from taxes.
— Taxpayers who had an adjusted gross income of at least $100,000 in 2008 contributed about 58 percent of all charitable donations, the Congressional Budget Office recently reported.
— One-third of donors surveyed would reduce their giving without the charitable deduction, according to a 2012 study.
— Nonprofit organizations produce $1.1 trillion a year in jobs and services and provide 13.5 million jobs, about 10 percent of the United States workforce.
The 32-member Charitable Giving Coalition, which sent the letter, includes the Evangelical Council for Financial Accountability, Association of Gospel Rescue Missions, The Salvation Army and American Red Cross.
In his budgets, Obama has proposed capping the itemized deduction at 28 percent for couples whose incomes are at least $250,000 and individuals who make at least $200,000 a year. High-income earners now can deduct at least 33 percent in charitable gifts.
The proposal could reduce charitable donations by as much as $7 billion a year, according to an estimate cited by Independent Sector, which leads a network of about 600 nonprofit and philanthropic organizations.
The federal tax system needs an overhaul, but the suggestion to limit charitable deductions further “is a threat aimed like a dagger at the heart of America’s charitable nonprofit entities, secular and religious,” Land said in his column. “It will weaken most, kill many, and harm all.”
Tom Strode is Washington bureau chief for Baptist Press.