News and analysis
March 21, 2013

Senate Effort to Protect Charitable Deduction Divides Nonprofits

By Doug Donovan

Two Republican lawmakers on Thursday sought to amend the Senate Democrats’ budget proposal to make explicit that the charitable deduction should stay intact.

But the proposed amendment—sponsored by GOP Sens. John Thune of South Dakota and Roy Blunt of Missouri—also lowers how much revenue the federal government would be authorized to raise in taxes over the next decade from $975-billion to $483-billion. 

That left nonprofit leaders in an awkward position on Thursday: Many wanted to support the Senators’ goal of fending off new limits on charitable deductions. Among those who praised the measure quickly was the Alliance for Charitable Reform, a project of the conservative Philanthropy Roundtable, which called it an “an important step for the charitable community because it sets the charitable deduction apart as different from all other deductions.”

Yet others feared that the amendment would do little to preserve the charitable deduction and was simply part of an effort to forestall major increases in taxes. Many charities have said in recent months that they worry that without more tax revenue, nonprofits and the people they serve could face severe cutbacks in aid they depend on.

Charitable Deduction in the Crossfire

In announcing their measure, Senators Blunt and Thune said their purpose is “to protect charitable organizations from being used as a source of revenue to pay for more spending by protecting the deduction for charitable giving from being capped, limited, or eliminated to pay for new spending as part of any tax increase.”

But the specific language in their legislation proposed only that the federal government be allowed to spend $483-billion from 2014 and 2023, down from the $975-billion the Senate Democrats’ budget proposes. That prompted some nonprofit officials to call the measure a ruse.

“It lowers the amounts of money to be raised from tax reform generally, using protecting the charitable deduction as the excuse,” said Patrick Lester, fiscal-policy director of the Center for Effective Government.

“The Thune/Blunt amendment doesn’t accomplish what it says it does. It is using charities as an excuse to lower money raised from tax reform overall.”

Democratic Plan

The budget proposal introduced last week by the Democrats says that all limits on itemized deductions, including those for charitable gifts, should be examined as a final spending plan is negotiated.

The Senate is expected to start voting on proposed amendments Thursday or Friday.

The Alliance for Charitable Reform posted a video of Senator Thune on its Web site announcing his hope of inserting language to protect charitable giving.   

“In 2011, Americans gave nearly $300-billion to support charitable causes,” Mr. Thune said. “It has a real budgetary impact because this is an instance where the private sector is fulfilling the need, a need that otherwise would have to be met by government spending.”

$9.4-Billion a Year Could Be Lost

While charities took different views on the Thune-Blunt measure, they are continuing to rally against efforts to limit the charitable deduction, especially proposals by President Obama.

A new analysis by the conservative American Enterprise Institute says President Obama’s preference to impose a 28-percent limit on the value of itemized deductions could reduce charitable giving by $9.4-billion each year under new higher tax income tax rates.