While there is no known bill pending before Congress to change the charitable tax deduction criteria in the IRS code, President Barack Obama has proposed to cap itemized deductions at 28 percent, including the one for charitable contributions, for individuals earning more than $200,000 a year and married couples earning more than $250,000. This proposal shows up in his tentative budget for FY 2012, and as a provision of the 199-page American Jobs Act. Itemized deductions currently are capped at the top marginal tax rate of 35 percent. The nonpartisan Joint Committee on Taxation says that at present levels of giving, the current tax break will cost the federal government about $230 billion in lost revenue between 2010 and 2014, and Obama wants to plug that hole. Times and Seasons provides a more detailed discussion of the charitable tax deduction.
However, opponents of Obama's proposal are concerned that it could cause charitable giving to decline during time of economic weakness. A George Washington University analysis of Obama's plan estimates that if his proposed limits were adopted, there could be a loss of between $2.9 billion and $5.6 billion in charitable contributions. Depending on how much an organization relies on private donations for individual charities, this could translate into losses as small as 0.1 percent or as great as 8 percent. Furthermore, while unemployment rocketed from 4 to 10 percent from 2008 to 2009, charitable giving dropped 20 percent during that period.
Congress is also interested and aware. Senator Orrin Hatch (R-UT) is worried that dropping the cap to 28 percent could cripple the biggest donations. So he and his colleagues on the Senate Finance Committee held hearings and took testimony from some important church and nonprofit leaders on October 18th, 2011. Among those giving testimony was Elder Dallin H. Oaks, a member of the Quorum of the Twelve Apostles of the Church of Jesus Christ of Latter-day Saints. A KSL Channel 5 news video is available, but we also have a YouTube video of his full testimony:
Five individuals testified before the committee; Elder Oaks' testimony can be reviewed HERE. In summary, Elder Oaks testified that the charitable tax deduction is vital to the private sector, providing much of the funding for countless organizations, both religious and secular, that are responsible for tens of millions of jobs and innumerable services that benefit our citizens at every level. Elder Oaks also noted that the financial well-being of this private sector is dependent upon private contributions that qualify for the charitable deduction, and the impact these private institutions have on those they serve is magnified by the millions of volunteers motivated by the ideals they pursue.
Elder Oaks also cited Hurricane Katrina relief efforts as a primary example of the success of private charity, noting that the LDS Church alone aided the cleanup efforts with almost 3,000 tons of emergency supplies, over $13 million in cash and use of heavy equipment, and its members gave more than 42,000 man-days of service. Additionally, other non-profit organizations gave more than $3.5 billion in cash and in-kind donations in support of relief efforts. This proved critical since FEMA and the state of Louisiana were slow to react and uncertain in their initial efforts.
During the follow-up question and answer portion, Elder Oaks also expressed his concern with the message that would be sent by any impairment or limitation to the deduction. "If the charitable deduction is modified in substance — not in the details, but in the substance — that will be a teaching message that charitable works are less important in our view than the works of government. It is that message that I speak against."
Elder Oaks' concern is valid; at stake are contributions to various funds within the LDS Church. While most offerings are voluntary and have minimal impact, tithing is more than an offering -- it's a worthiness issue. One can remain a member of the Church without paying tithing, and even be extended some service callings. But temple access and leadership callings are beyond the reach of members who don't tithe regularly. Tithing is considered so important that members with budgetary problems are counseled to tithe first before paying bills as an act of faith. This counsel is usually accompanied by financial counseling to help members better meet all financial obligations.
Most proponents of tax simplification do want to retain the charitable deduction, as well as other critical deductions such as the home mortgage interest deduction and retirement contribution deductions. But there are numerous nitnoid deductions that should be scrapped.
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