Charities fear GOP tax plan will hurt giving

WASHINGTON — At the heart of the GOP tax plan is a push toward simplification that could have unintended consequences, potentially hurting charities — particularly those that depend on donations from middle-class donors.

To fulfill a long-held promise to make taxes simpler, the plan would end itemization for most Americans who use it today, by increasing the standard deduction. About 30 percent of taxpayers who file returns currently itemize — and the prospect of that change has triggered a strong behind-the-scenes campaign from charities seeking to make sure the tax incentive continues to be used.

According to an Urban-Brookings Tax Policy Center analysis of a plan with similar elements, the 45 million households that would itemize deductions under the current rules in 2017 would drop to 7 million.

Many people who no longer itemize would continue to give, and the charitable contribution deduction would still be available to the small fraction of people who do itemize — who would tend to be higher-income households. But charitable organizations are concerned that donations will drop. More than 80 percent of itemizers reported making charitable donations, compared with 44 percent of non-itemizers, according to an analysis by Indiana University researchers commissioned by Independent Sector, a membership organization of nonprofits, foundations and corporations.

That study found that decreasing the top tax rate and increasing the standard deduction slightly less than the current proposal could cut charitable giving by up to $13.1 billion per year. That’s a tiny percentage of the $373.3 billion that was donated in the United States in 2015, according to the Giving USA Foundation, but the issue has become an important one for charities.

“We have spent an enormous amount of time up on the Hill, and we get back the talking point, ‘Oh, don’t worry — we preserve the charitable deduction.’ That makes it seems like many lawmakers don’t understand, themselves, what the ramifications of this legislation are,” said Steven Taylor, senior vice president at United Way Worldwide. “A lot of charities are coming to grips with the fact that there may come a point where individual charities would have to start having to come out in actual opposition to the tax reform bill — and no charities want to be put in that position.”

The end of itemization for most people would likely hit some charities more than others. About 5 percent of people will continue to itemize under the new plan, mainly higher-income people with very large mortgage interest or charitable contributions. That could hurt nonprofits that depend on smaller donations by middleclass families: think the local soup kitchen or the United Way, which receives 7.2 million small donations averaging $154 a year.

“One of the points of the [charitable] deduction is to foster altruism, to foster pluralism, to foster civic society,” said Roger Colinvaux, a law professor at the Catholic University of America and former legislation counsel on Congress’ nonpartisan Joint Committee on Taxation. “If the deduction ends up being for the top 5 percent of taxpayers who are the wealthiest, I think you’re really painting a very elitist picture of what this incentive is for. It’s only incentivizing the charitable choices of the richest, and the pluralism of the richest, and the civic groups chosen by the wealthiest.”