Nonprofit advocates are scrambling to secure several tax and spending provisions for charities before Congress wraps up for the year.
The most likely path to enactment would be inclusion in a broader package of year-end tax provisions. Such tax bills are often bipartisan and relatively uncontroversial because they typically include a wide range of benefits for both businesses and individuals. Such bills are sometimes delayed until the following year because lawmakers know they can retroactively restore expired tax breaks.
David Thompson, vice president for public policy at the National Council of Nonprofits, Ben Kershaw, director of public policy and government relations at Independent Sector, and other policy experts provided the following synopsis of the provisions at stake, their current status, and their outlook:
Expanding charitable deductions to more Americans. In response to the pandemic, Congress enacted a tax break allowing people who don’t itemize their taxes to deduct donations to charity, something they previously couldn’t do. The limit is $300 for individuals and $600 for couples.
Status: The provision is scheduled to expire at the end of this year. Bipartisan legislation in Congress would extend the break through the 2022 tax year, and increase the maximum deduction to about $4,000 for single people and $8,000 for couples.
Outlook: The expanded deduction has been popular with charities, which say it is particularly important because of the 2017 tax law, which shrank the share of taxpayers who itemize from about 30 percent to about 14 percent. However, lawmakers have resisted calls to make it permanent, and some researchers say it has had relatively little impact on giving.
Limits on the charitable donations people can deduct every year. Until the pandemic hit, the charitable deduction for people who itemize their taxes was limited to no more than 60 percent of their annual adjusted gross income. Congress raised that threshold to 100 percent in response to the pandemic. Fundraisers say the provision is important even though it affects a small number of people because those people are wealthy and give away a lot of money. Steve Taylor, vice president and counsel for public policy at United Way Worldwide, noted that the 100 percent threshold might spur some donors to accelerate gifts because they otherwise might have been required to spread the deductions over multiple years.
Status: The limit on charitable deductions for taxpayers who itemize is scheduled to revert to 60 percent at the end of this year.
Outlook: Thompson and Taylor both said they are optimistic it will be extended.
Corporate giving. Until the pandemic hit, corporations could deduct up to 10 percent of their adjusted gross income for charitable giving. That threshold was raised to 25 percent in response to the pandemic.
Status: The threshold is scheduled to revert to 10 percent at the end of this year.
Outlook: Thompson and Taylor said the measure has about the same prospects for being extended as the 100 percent cap for individuals.
Changing Donor Behavior
Some advocates of preserving the tax breaks acknowledge that these measures may not have a big impact on giving, but they are concerned about seeing hard-fought legislative gains slip away at a time when they are working to expand incentives for charitable giving.
For example, Cherian Koshy, a nonprofit consultant and former director of development at Des Moines Performing Arts, said that while the $300/$600 limit on the charitable deduction is likely too small to significantly change donor behavior, it’s important to, at minimum, keep it in place while nonprofit advocates push for higher caps.
He added that all tax breaks for charitable giving, no matter how small, help nonprofits to some degree.
Koshy said that maintaining and expanding tax incentives for giving is important to reverse a worrisome trend: Researchers have found that the share of Americans who donate to charity has steadily declined in recent years.
Kershaw of Independent Sector added that extending charitable deductions “sends a powerful message about the importance of people helping their communities at this time.”
And Taylor noted, “In the context of $470 plus billion in annual U.S. giving, the total dollars generated from these provisions would be small. But the impact on any given charity could be tremendous if they receive a big gift from an individual or corporation because of one of these provisions.”
