GOP seeks to dou­ble stan­dard de­duc­tion

Char­i­ties: Tax break in­creases giv­ing

The Washington Times Daily - - POLITICS - BY DAVID SHERFINSKI

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

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