Last week’s Washington Post Headline caught my eye—as it must for every other U.S. tax payer, “New estimate: GOP’s second tax cuts would add $3.8 trillion to deficit.”
Regardless of your views on politics, tax cuts, and deficits, this newly proposed legislation further erodes incentives for one of America’s most bipartisan and long-held values: charity.
As many Loudoun County residents know, we face some of the most lackluster charitable giving rates in the U.S. Blinded by the fresh paint on the homes and businesses in one of the fastest growing and high-income counties in America, our residents don’t see the need that is, in fact, here.
But, this is larger than what we face here in our community.
Take, for instance, the estate tax: one of the most pro-social engines to establish legacy gifts in the U.S. Newly proposed legislation offers even deeper cuts to the estate tax paid by only 5,000 of the wealthiest families in America.
The Tax Cuts and Jobs Act ratified in December 2017 made the first changes to how Americans report their charitable gifts. Philanthropic researchers at Philanthropy Outlook have scoured existing data to anticipate how these new laws may affect charitable giving. Consider that, in years prior, 30% of U.S. households itemized their taxes, providing a vehicle to reduce taxes liability with each charitable gift reported.
With the new standard deduction rules beginning in 2018, the number of households that will qualify for itemization is expected to be reduced to 5% from 12.5%. It will be the larger income earners in our nation who continue to have the option to itemize. And, if you’ve studied data offered by the Chronicle on Philanthropy’s How America Gives, you know it’s the low to mid-income earners who donate the highest percentage of their income to charity. Local charity is likely to suffer the most in this new model.
Plus, have you heard IRS guidelines are proposing that, above and beyond the new $10,000 cap on state and local tax deductions, tax credits issued by your jurisdiction will be excluded. In other words, tax credits received as you donate through Virginia’s Neighborhood Assistance Program (benefitting donors to nonprofits serving poverty and low-income citizens), Land Conservation Tax Credits, and the Education Improvement Scholarship Tax Credit Program, and others, will no longer qualify for federal tax deductions—even if you itemize.
While not the first reason all givers give, tax payers are most certainly responsive and incentivized by our tax system’s “nod” to charitable giving. Sixty-seven percent said they would somewhat or dramatically decrease their donations if the deduction was eliminated in a donor survey conducted by the American Institute of CPAs.
Weakening the social contract between government and citizen that supports the return of income through charitable giving to address need, education, equity, and innovation is misguided, at best.
The House is expected to vote later this month.