Posted on October 21, 2011

Senate Finance Committee Holds Hearing on Deduction for Charitable Giving

A Senate Finance Committee hearing has reignited debate about whether or not the deduction for charitable giving should be modified as part of a deficit-reduction plan, the Chronicle of Philanthropy reports.

Although a provision to reduce the cap on itemized deductions from 35 percent to 28 percent recently was removed from the American Jobs Act, the topic of whether or how to modify the charitable deduction remains hotly debated. During the finance committee hearing, Sen. Orrin Hatch (R-UT) seemed to argue against making any changes to the deduction, while Sen. Max Baucus (D-MT), who chairs the committee, highlighted inequities in way the deduction is administered and called for its reform.

A deficit-reduction committee formed by the Obama administration has proposed replacing the deduction with a tax credit for donations beyond 2 percent of adjusted gross income, but United Way Worldwide president and CEO Brian Gallagher argued that the proposal was potentially devastating to charities, citing a recent study that estimated the proposal, if enacted, could reduce charitable giving by between $2.9 billion and $5.6 billion a year.

In his remarks to the committee, Roger Colinvaux, a former top aide to the congressional Joint Committee on Taxation and now an associate professor of law at the Columbus School of Law, suggested that Congress consider whether or not all tax-exempt charities should be eligible for tax-deductible contributions. Senator Charles E. Grassley (R-IA) supported that idea, noting that "the standards for charitable status are vague."