In his speech to a joint session of Congress Wednesday night, President Biden called for a substantial expansion of the social safety net, providing billions of dollars in assistance directly to low-income people and to the nonprofits that serve them.
Nonprofit advocates have been pressing for such aid, which would expand the reach of organizations that provide child care, home health-care visits, and food for those in need. As they welcomed the proposals in Biden’s $1.8 trillion American Families Plan, coalitions that represent charitable organizations and donors said they were relieved by what was not included: new limits on how much wealthy people could deduct from their taxes, including charitable deductions.
Biden has said he supports a 28-percent cap on itemized deductions for taxpayers making $400,000 or more annually. However, that proposal is not in a summary of the American Families Plan released by the White House, although the plan proposes numerous other tax increases on the wealthy to offset the cost. Today itemized deductions face no limit, but people can’t deduct more than 60 percent of their income in one year.
Spending in the plan totals $1 trillion. Much of it would expand anti-poverty measures in the $1.9 trillion stimulus package enacted last month and make some of those provisions permanent. Another $800 billion in tax credits would be aimed primarily at education and child care.
“We are gratified that the 28-percent cap on itemized deductions, which had been raised as a possible component in the proposed plan, is not included as an offset in the American Families Plan,” Dan Cardinali, CEO of Independent Sector, a national coalition of charities and foundations, said in a statement.
But because the idea is still something Biden supports and could propose in other plans, Cardinali said, “we will continue to urge policymakers to exclude the charitable deduction from any future efforts to introduce caps on itemized deductions.”
Michael Nilsen, vice president of communications and public policy at the Association of Fundraising Professionals, echoed those concerns, saying now would be an especially bad time to impose a cap, given the impact of the pandemic on many nonprofits.
David Thompson, vice president for public policy at the National Council of Nonprofits, said reducing the availability of deductions would result in reduced giving, “which means charitable organizations are less able to provide meals, housing, health care, cultural programing, and so much more.”
Indirect Incentives for Giving
Some of Biden’s other proposed revenue-raising measures may have the opposite effect — boosting incentives for giving. For example, for the wealthiest taxpayers, Biden has proposed increasing income taxes and boosting the capital-gains tax to nearly 40 percent. Such proposals would increase the incentive for the wealthy to donate to lower their tax bills.
Tony Martignetti, a nonprofit consultant, said those tax increases also could make certain types of planned gifts more attractive. Charitable gift annuities and charitable remainder trusts, in particular, would become more beneficial to donors. “These vehicles deliver payments to donors that are usually fixed,” Martignetti said. “Payments from these, while considerably lower than recent large-cap equity returns, are favorably taxed, including a likelihood of years of tax-free payments from charitable gift annuities.”
Jody Levison-Johnson, CEO of the Alliance for Strong Families and Communities and Council on Accreditation, said the investments would give a big boost to Biden’s efforts to reduce child poverty.
“Proposed investments in a universal early-childhood education system, child care, and the child-care work force would help rebuild the infrastructure of that sector, which has suffered during the pandemic, while supporting working families and helping children thrive,” Levison-Johnson said.
