Charitable Giving

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WomenMatter will continuously post updates on all this and other issues as we monitor the continuing philosophical and practical debates nationwide. Please check back often for updates. Past updates are available for reference on the Charitable Giving Archives page.

Give to Receive: What You Get Out of the Charitable Giving Act

On September 17, 2003, the House of Representatives passed legislation to encourage Americans to give to their favorite charities. The Charitable Giving Act of 2003 allows taxpayers to deduct up to $250 ($500 for joint returns) of their charitable contributions in 2004 and 2005.

Lawmakers say that the bill supports non-wealthy citizens who give a significant amount to charity and who do not itemize their deductions. More specifically, the legislation allows a standard deduction for every dollar (up to $250) donated beyond a $250 floor. So, if Mary Taxpayer donates $400 to charity, she gets a $150 deduction ($150 equals the amount in excess of the $250 floor). If Mary Taxpayer and her husband file a joint return and donate $1000 to charity, they can deduct $500 ($1000 - $500 floor for a joint return).

The Charitable Giving Act of 2003 has broad bipartisan support. Most representatives feel that the bill provides a fair tax break aimed at generous middle-income citizens. Only 13 representatives voted against the bill.

Increasing giving, increasing the deficit

Those who voted against the bill blamed the tight budget and billowing deficit. One of the bill’s opponents, Jerry Kleczka (D-Wisconsin) says that future generations will have to pay for this and other tax cuts.

Every time Congress passes a tax cut, it drains our public money. The Charitable Giving Act is estimated to drain $12.7 billion from the treasury. When we cut off the money coming in (taxes) and continue to spend at the same rate, we go into debt.

Senate version free for future taxpayers

The Senate has passed a version of this bill that would not increase public debt. Like the House bill, the Charity Aid Recovery and Empowerment Act provides tax cuts to charitable taxpayers and simultaneously collapses corporate tax shelters. The Senate bill pays for itself because the money saved by plugging loopholes roughly matches the money spent by providing tax cuts.

The differences between the two bills is once again a difference in philosophy – not just money. The Bush Republicans want to help corporations as their theory of economic growth is dependent on corporations being helped so they can grow and hire workers.

Foundation frenzy

The Charitable Giving Act also decreases the tax rate for private foundations from 2% to 1% of their net investment income. Nevertheless, many private foundations are steaming mad and don’t want the bill signed into law. This is because the bill includes a provision that specifies how foundations determine their charitable giving rate, or “payout rate."

Current law requires private foundations to pay out 5% of their assets to charity each year. Many foundations include operating expenses, such as salaries and travel costs when calculating this 5%. This is questionable if foundation employees are paid high salaries or if foundation executives are traveling first class.

The Charitable Giving Act prohibits some administrative expenses, such as salaries over $100,000 and first-class airfare, from being included in the 5% gift calculation. This means that foundations will have to pay out more to meet the 5%. Private foundations complain that this will prohibit the growth of their endowments.

The Council on Foundations states that foundations need a 9.5% return on investments in order to make the 5% payout rate and to keep their endowments growing faster than the inflation rate. Since the stock market has been slow for the past three years, some foundations may suffer from the new law. However, most foundations have other sources of income, such as large private gifts that will allow them to make the new 5% payout rate without any problem.

State funding Church?

Many claim that the Charitable Giving Act is the Bush administration’s attempt to give religious organizations federal money.

A previous incarnation of the bill made it easier for faith-based organizations to obtain government money for social services. However, neither the Senate nor the House versions contain this amendment. Some language in the House bill encourages companies to increase donations to religious organizations, and a provision in the House bill discourages the IRS from denying tax-exempt status to religious organizations. Given the wealth, including real estate, of some religious organizations and their potential political power, the detailed language of these bills is important. WomenMatter will continue to track the details.

While many of the new deductions are likely to be based on donations to faith-based organizations, neither bill rewards taxpayers who give to religious organizations over those who give to secular charities.

The differences between The Charitable Giving Act and the Charity Aid Recovery and Empowerment Act will be worked out in committee. If the committee comes up with a uniform version of the bill, it will go on to President Bush for his signature. Whether or not he signs it depends on his philosophy and his priorities. Giving to faith-based charities or helping business.

Give to receive

The philosophy behind the policy is that citizens need an incentive to give. The Charitable Giving Act encourages charity by offering a tax break in return. Does tax relief inspire you to give? Discuss this issue with other WomenMatter readers in one of our online forums. Read more about charitable giving and find out how your representatives voted on this bill.

Posted on: 9/24/2003

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