We may have personally avoided falling off “fiscal cliff” with the legislative agreement passed on Tuesday, but that charity you support? It may be teetering on the edge at this very moment.
The reason is that the legislation caps the amount of charitable deductions that high income households can claim on taxes. Sure, in theory people should not be driven to give funds to non-profits based on tax deductions, but let’s be realistic. Those deductions are the reason for thousands upon thousands of individual donations to charity each year.
So much so, in fact, that tax deductions for charitable donations cost the government $50 million annually, according to the New York Times, with some of the largest donations coming from individuals in high income households.
You may not fall off the fiscal cliff, but will your favorite charity?
There are still some options on the table that could limit the decline in charitable giving based on a cap among high income earners. One is capping the total amount a household could deduct at $25,000 or $50,000, which would still allow for very large charitable donations. The other option caps the value of the charitable-giving deduction at 28% for households with incomes over $250,000, down from the current cap of 35%.
Regardless, the non-profit sector is now in fear that this new cap will severely deter charitable giving. At present, Americans donate about $300 billion to nonprofits annually, yet according to Philanthropy News Digest, the cap on tax deductions for charitable giving could potentially cost non-profit organizations up to $7 billion a year.
Both parties have stated that they want to continue to encourage citizens to give to charitable organizations, though with pressure looming there is growing support from each side for the charitable giving cap on high income households. Though we have yet to see how this cap will actually affect charitable giving, there is no doubt that organizations nationwide are already fearful. In fact, non-profit leaders met in Washington to lobby Congress to leave the charitable deduction tax issue off the table.
Regardless of what happens, let’s hope that people still give for the sake of giving.
What do you think of the cap on charitable giving for high income earners? Is it fair or not?
Resources:
http://www.huffingtonpost.com/2013/01/02/ari-fleischer-charity-tax-break_n_2397880.html
http://www.nytimes.com/2012/12/06/business/charities-press-congress-to-save-tax-deductions.html?pagewanted=2&_r=0&partner=rss&emc=rss
http://foundationcenter.org/pnd/news/story.jhtml?id=401000008
Things never are simple, are they? You have presented this very well. I’m inclined to agree with you. I do hope that many will continue to give, but I admit that the man of the rich are rich for a reason. If the cap is set it will certainly cause the more frugal (for lack of a better word) philanthropists to hold back.
As much as I like to see non profits funded, I like guaranteed higher tax rates for high income earners more. I like philanthropy, but its a tax loophole.
It sure is. Here’s hoping that the upper echelon still choose to give.