Federal lawmakers are heading into an intense period of political and policy debate regarding the budget, deficit reduction and tax reform. There is growing and urgent concern that elected officials are seriously considering unraveling a 100-year-old American tradition that encourages charitable giving and benefits millions of people here in Indiana and throughout the country.
While elected officials express support for the value and impact of charitable giving, proposals on the table indicate a very real threat to incentives that encourage this kind of generosity. Congress is considering whether to retain, modify or eliminate the charitable deduction during its deliberations on tax reform and deficit reduction.
Any caps or limits on charitable giving will have a devastating impact on charities and not-for-profits. If donors have less incentive to give to charities, donations decline. The result—the loss of billions of dollars—would impede the important work not-for-profits do for the millions of Americans who rely on them, as well as threaten the jobs the sector provides. Almost one in 11 paid Indiana workers is employed in the sector, with almost $9 billion in annual payroll contributing to Indiana’s economy.
Unlike other tax incentives, the charitable deduction encourages behavior for which the individual taxpayer receives no personal tangible benefit. It is a means of enriching communities, rather than individuals, and capping it would not make the tax code more equitable.
Together, philanthropy and not-for-profits spur innovation, aid the most vulnerable, provide relief in a crisis, support education and health, advance cures and scientific breakthroughs, enhance the arts, make investments that fuel economic growth, and more.
You don’t have to look far to see the inextricable link between charitable giving and thriving communities. Indiana is fortunate to have community foundations serving every county in the state; funds held by the community foundations—funds that were established through charitable contributions—annually give out over $100 million in grants to benefit their local communities.
Grants to support access to quality early childhood education, scholarships to ensure a well-qualified work force, investments in a community’s recreation, cultural and tourism assets, grants that support a community’s social service safety net—all possible through the individual charitable giving that local citizens leverage through gifts to their local community foundation.
In 2011, Americans gave nearly $300 billion to support a multitude of worthy causes. According to the Charitable Giving Coalition, for every dollar a donor deducts, communities receive as much as $3 of benefit. It’s unlikely government could find a better way to leverage private investment in community services.
It’s also important to recognize that donors of varying income levels, not just the wealthy, itemize their deductions. According to the IRS, only 8 percent of Indiana itemizers were in the $200,000-and-above tax bracket in 2010, while 68 percent of itemizers had incomes between $50,000 and $200,000, and 24 percent had incomes below $50,000.
However, a 2011 Gallup poll found that, even among those Americans who do not claim the deduction, 62 percent are opposed to its elimination.
Without the continued support of generous Hoosiers, not-for-profits will be forced to slash or abandon their work.
Tough decisions must be made to tackle the nation’s fiscal challenges without hurting our communities. Reducing the value of the charitable deduction is not a solution. We should be working together to find ways to encourage more giving, not less.•
Manlove is president and CEO of the Indiana Grantmakers Alliance. Send comments on this column to [email protected]