December 23, 2014

Obama Hurt Charities With Tax Move

Somewhere in Michigan this giving season, more than 150,000 pounds of apples that could have helped to feed hungry families were dumped in a landfill. Who do those families have to thank? President Obama.

This month, House and Senate negotiators, led by the outgoing chairmen of the committees that draft tax law—Rep. Dave Camp, a Michigan Republican, and Sen. Ron Wyden, Democrat of Oregon, attempted a final push to make permanent three temporary provisions in the tax code that spur donations to charitable organizations.

The first of these provisions, known as the IRA charitable rollover, enables people age 70.5 to donate up to $100,000 to charity directly from their retirement savings without incurring tax on the withdrawal. Another piece provides powerful incentives to donate land conservation easements, while the third encourages restaurants, farmers, and others to donate extra food.

Taken together, those three incentives have encouraged individuals, large corporations, and small businesses to help their communities.

Regrettably, these charitable tax provisions were allowed to expire on January 1 for the fourth time in recent years, as were a set of other tax laws.

On each of the three previous occasions, the entire set of tax laws was reinstated retroactively at the end of the following year.

While that may be an adequate solution for many tax provisions that were about to die, including the credit that companies get to spur research and development and the deduction individuals are allowed to take for money they pay in state and local taxes, the temporary and retroactive reinstatement of these giving incentives is of little value to the people served by charitable organizations.

Older Americans, who are required by law to withdraw money from their individual retirement accounts each year, can’t retroactively give the money to charity without incurring a tax liability, so all year long people are left in the dark about whether it’s financially wise to make a gift to charity using IRA funds.

Additionally, land conservation deals often take years of planning, and unpredictable tax changes can mean a conservation effort falls apart indefinitely. And without the deduction for food donations in place, unused vegetables, fruit, meat, and other items from restaurants, farms, and small retailers are dumped in landfills because it’s cheaper to throw away food than give it to food banks or other charities.

It was against this backdrop of lost charitable gifts that Mr. Camp and Mr. Wyden sought to make permanent these provisions, which have enjoyed broad, longstanding, bipartisan support in both chambers of Congress.

However, before the House could vote, President Obama said he would veto the legislation, and Democratic leaders in the House followed that lead.

The president’s rationale for opposing the legislation may seem reasonable at first blush—the 10-year cost of making these three tax provisions permanent, estimated at $11-billion, would be added to the national debt.

But it’s wrong to think of this as a giveaway, like those that allow individuals or corporations to amass greater wealth. Instead, this tax revenue would be forgone in favor of vital support for the neediest members of our society.

Indeed, these provisions are exactly the kind of investment we need to make in our communities, because they could stimulate tens of billions of dollars in new charitable gifts. Instead, the president’s actions will decrease, by billions of dollars, funding for programs and services that improve lives and lift up communities.

What an unhappy way for millions of Americans to end the year. The president should resolve to do better for the nation’s neediest in 2015.

Diana Aviv is chief executive of Independent Sector.