Posts Tagged ‘charitable deduction’

Senate Finance Committee’s hearing on tax incentives

April 2, 2011

Submitted by Grant Martin

The committee and the panelists did not cover the charitable deduction issue specifically until the very end when Sen. Thune pointedly made remarks and asked questions about the charitable deduction. In response to one of Sen. Thune’s questions about the impact of the Administration’s proposal to cap the deduction from a tax standpoint, Dr. Eric Toder of the Urban Institute-Brookings stated that the proposal would add to the complexity of the tax code.  Dr.  Robert Carroll of Ernst & Young agreed. This response is something that we likely will include in future letters and talking points as we strive to educate folks on the Hill.

But the panelists also noted the inequity of the deduction as it currently stands (where higher income individuals/families can take a greater deduction than lower income individuals/families for the same gift amount).  From our standpoint, I think that we have plenty of responses to that comment.

Sen. Thune asked about the potential financial impact of the Administration’s proposal, and the panelists acknowledged that there would be some impact on high income giving but they offered nothing concrete.  The panelists did suggest that a tax credit (with some sort of floor) for charitable gifts likely would be more effective than a charitable deduction.  This was a general theme that was raised a couple of times during the hearing—that credits were superior to a deduction. Interestingly, it was suggested that perhaps tax credits could be used for charitable gifts for certain income levels while retaining charitable deductions for higher income individuals/families.

There were a few general comments not directed toward the charitable deduction that are worth noting.  In his opening statement, Sen. Hatch stated that “[w]e can’t simply raise taxes on flow-through businesses…by taking tax incentives away without lowering tax rates in return.”  He then went on to say that it would be a terrible deal for someone to be told, “[We’re] going to take something away from you, and you’re not going to get anything in return.”  Although he was referencing businesses, it seems easy enough to apply his statements to the Administration’s proposal to cap the deduction, particularly when we’re briefing Sen. Hatch’s staff and other GOP offices.

Although the IRA Rollover provision was not mentioned specifically, Dr. Carroll did respond to a question about R&D tax incentives, and he emphatically stated that constantly expiring (and subsequently extended) tax provisions only add to the complexity of the tax system and make it difficult for individuals and organizations to take advantage of such provisions.  He and Dr. Raj Chetty of Harvard noted that retroactive provisions were ineffective since it is impossible for a retroactive provision to spur activity.  These are comments that we can use to bolster our argument for extending the IRA Rollover for a longer length of time or, better yet, permanently.

It is worth noting that when Dr. Toder was asked what specific tax provision would be most helpful, he tried to remain noncommittal but finally stated that a permanent AMT fix was the most crucial element in his opinion.  His answer just underlines the fact that the AMT fix is quite popular and will prove problematic for us since the three-year AMT fix is tied to the itemized deduction cap.

According to one of Sen. Baucus’ committee staff, the committee will eventually hold a hearing specifically about nonprofit-related tax issues, but at this point they are not sure when that hearing will occur.

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