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Will Grantmakers Fill the Gap Created by Changes to Charitable Tax Deduction?

Thursday, November 29, 2012   (0 Comments)
Posted by: Adam Donaldson
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November 2012

By Adam Donaldson, ABAG Member Services Director

Grantmakers detest saying no to worthy nonprofit organizations struggling to meet increased community needs in our recovering economy. But across the country, government dollars are cut; charitable giving is flat; and requests are up.

Get ready to say "no” more often.

Potential changes to incentives for charitable giving in the tax code are an ongoing part of deficit reduction and tax reform discussions in Congress and at recent Presidential debates. President Obama would cap the charitable deduction at 28 percent for high-income taxpayers. Governor Romney has suggested a cumulative cap on itemized deductions to pay for his plan to lower tax rates.

Either legislative change will result in less charitable giving and undermine a proud tradition of American philanthropy.

Research shows that the charitable deduction encourages taxpayers to give more of their income to charities than they would otherwise have given. The Center for Philanthropy at Indiana University estimates that the 28 percent cap proposal would result in a reduction of $2.43 billion in giving. Further, high income individuals provide a significant proportion of giving. Based on recent IRS and census data, tax filers who reported an AGI of at least $200,000 represent about 3 percent of the population, but they also make up almost half – $78 billion – of the $164 billion claimed as charitable deductions.

People give for many reasons but incentives, such as the charitable deduction, make a difference. Each of us has this personal experience, and we witness greater charitable gifts and the creation of foundations at "tax events” -- when wealth is transferred or when a successful entrepreneur sells a company.

Grantmakers and nonprofits require public policies that encourage charitable giving to serve those in need and profoundly improve the quality of life for many people. Many regional associations of grantmakers, including the Association of Baltimore Area Grantmakers, Council of Michigan Foundations, Donors Forum of Illinois, and Minnesota Council of Foundations, have committed to preserving the full value of the charitable deduction. These associations will be among hundreds attending Foundations on the Hill March 19-20 to meet with Members of Congress about the charitable deduction and other policies critical to philanthropy.

Current grantmakers cannot fill the gap in nonprofit need nor afford the loss of the charitable deduction. Tax policy is complicated – dare to admit – even boring, but to promote philanthropy, we all need to learn more about tax policy and decide to whom we will say "no.”

Contact Adam [] to learn more about Foundations on the Hill and other actions you can legally take to help preserve the charitable deduction.


Charitable Deduction Research

Council on Foundations Issue Paper

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