GOP seeks to double standard deduction
Charities: Tax break increases giving
Congressional Republicans say they will preserve popular tax breaks for charitable giving and mortgage interest, but advocacy groups say even if they aren’t directly targeted, both nonprofits and the housing industry are likely to take hits.
Some analysts are anticipating as much as a 10 percent drop in home prices if the GOP goes ahead with its tax plans, which would flatten the system out, cutting income rates across the board while erasing most special tax credits and deductions — save for the mortgage and charity breaks.
But by increasing the standard deduction, the GOP’s plans would reduce the reasons for taxpayers to itemize their deductions — which would mean fewer people searching for charities to donate to ahead of tax time.
A higher standard deduction could also change the incentives that govern housing purchases, the industry fears. The National Association of Realtors is warning Congress to tread lightly.
“Our premise to date has been do no harm to housing,” said Jamie Gregory, the group’s deputy chief lobbyist.
Under current law, taxpayers can choose between taking the standard deduction — $6,300 for individuals and $12,600 for married couples — or list out each of their deductions, hoping to build up an even bigger break than the standard deduction.
The mortgage interest deduction alone can often be bigger than the standard deduction.
But House Republicans have called for essentially doubling the current standard deduction levels. They say they want to simplify things and reduce the number of taxpayers who itemize their deductions from the current level of about 33 percent to 5 percent.
“They’re all being stacked on top of each other,” said Kyle Pomerleau, director of federal projects at the Tax Foundation. “And if you take one out from under all of them, all the rest of them may fall below the standard deduction, and now no one’s taking any itemized deductions, and the realtors and the nonprofits are unhappy.”
A recent PricewaterhouseCoopers study commissioned by NAR said changes to the tax code along the lines of the House GOP’s blueprint would make housing a less attractive investment and cause a 10 percent drop in home prices in the short-term.
Charity groups, meanwhile, say cutting the number of itemizers is bad for them.
“That’s nearly 30 million taxpayers who will no longer have access to the charitable deduction, likely leading to a decrease in giving,” said Jason Lee, who chairs the Charitable Giving Coalition.
A recent study from Indiana University said a tax proposal along the lines of the House GOP’s could reduce charitable giving by up to $13 billion, though the study also said people donated more than $373 billion in 2015.
Though only about one-third of taxpayers itemize their deductions, the mortgage interest and charitable breaks are among the most expensive, making them nearly impossible to weed out entirely without generating significant blowback from those who use them.
The Tax Foundation estimates that getting rid of the mortgage interest deduction would net the federal government between $1.6 trillion and $1.7 trillion over a 10-year period, and that eliminating the charitable contributions deduction would generate nearly $700 billion over 10 years. The House GOP plan does eliminate another popular and expensive break for state and local taxes paid — a move that would generate between $1.7 trillion and $1.8 trillion over 10 years, the Tax Foundation said.
While charitable giving is popular, some analysts say it can be abused as wealthier individuals get creative with labeling their “donations” — for example, when taxpayers get a break for offering up a land easement to be protected for conservation or environmental purposes.
“Some donors abuse the provision by applying grossly inflated appraisals to the value of the easement to increase their charitable deduction or by taking donations for easements that do not fulfill bona fide conservation purposes,” Adam Looney of the Tax Policy Center wrote in a report released last week.
President Trump reported $64 million worth of conservation easements in a list provided to The Associated Press during the presidential campaign of his charitable donations since 2010.
In one case, Mr. Trump announced in January 2015 he was giving a conservation easement to a preservation group in California rather than construct luxury homes on land that continued to be used as a driving range at his Trump National Golf Club in Los Angeles.
Mr. Trump said at the time the 11-acre swath of land in question was worth “much more than $25 million” after he had bought the entire 300-acre property for $27 million in 2002.
“That’s nearly 30 million taxpayers who will no longer have access to the charitable deduction, likely leading to a decrease in giving.”
— Jason Lee, Charitable Giving Coalition