In this brief, we show that whatever the revenue cost associated with a more universal deduction, policymakers should consider how to maximize the amount of goods and services that can be provided efficiently and equitably to charitable recipients for the subsidies it provides. Setting a floor contribution level above which some tax subsidy would be provided is a primary way of achieving that objective.
Budgetary pressures—from the expanding national debt to the rapidly rising cost of entitlement programs—are forcing policymakers to look for ways to reduce spending and increase tax revenue. The debate is increasingly involving changes to the tax code that could have a significant impact on the charitable sector. Proposals to reduce or eliminate the charitable deduction have raised serious questions about how tax incentives affect giving. Possible changes to the estate tax, the state and local property-tax exemption for nonprofits, and other tax provisions that affect charities are also on the table. With charities already struggling to meet greater demands with fewer donations, it is vital to understand how they’ll be affected by different types of proposals.
The Tax Policy and Charities initiative analyzes these interactions between the tax system and the charitable sector, with special emphasis on federal and state fiscal debates. Researchers study income and estate tax deductions for charitable giving, income- and property-tax exemptions for nonprofits, and private foundation excise taxes, among other issues. We inform the debate as it evolves, unpacking the controversy over donor-advised funds and analyzing the IRS scandal regarding social welfare 501(c)(4) organizations. We show how some proposals can strengthen the charitable sector at little or no cost to the government and how revenues can be raised without harming charitable giving.
We leverage the Urban-Brookings Tax Policy Center’s modeling capabilities and the Urban Institute’s expertise on nonprofits and philanthropy to evaluate proposed policy alternatives. Beyond studying the consequences for giving as a whole, we dig deep to estimate which charities—hospitals, universities, food banks, job-training programs, or foundations—would be put at greatest risk and how changes in tax policy would affect the services that individual nonprofits provide. These specifics ground the debate and give lawmakers the knowledge they need to make informed decisions.
Our staff, consultants, and advisers have testified before Congress about the charitable deduction, describing trade-offs and providing suggestions for reforms that could strengthen the charitable sector and government. We have redirected the conversation from limiting the deduction to making it more efficient in ways that would increase giving.
As one example, we have testified and written about extending the charitable deduction to Tax Day, April 15, which would likely increase giving. In early 2013, we hosted a roundtable on the topic and invited members of the Committee on Ways and Means and the Joint Committee on Taxation, as well as several experts on tax policy and on nonprofits. Ways and Means Committee Chairman Dave Camp (R-MI) included this extension in his Tax Reform Act of 2014 proposal.
Jon Bakija (Williams College)
Bob Boisture (Boisture Law, Venture Philanthropy Partners)
Evelyn Brody (Chicago-Kent College of Law)
Arthur Brooks (American Enterprise Institute)
Roger Colinvaux (Columbus School of Law, The Catholic University of America)
Joseph Cordes (George Washington University)
Harvey Dale (National Center on Philanthropy and the Law)
Marion R. Fremont-Smith (Hauser Center for Nonprofit Organizations, Kennedy School of Government at Harvard University)
Daniel Halperin (Harvard Law School)
Patrick Rooney (Center on Philanthropy at Indiana University)
Joseph Thorndike (University of Virginia)