Charitable-Giving Plan Divides Nonprofit Groups and Worries Donors
“Bluntly, this proposal allows the government to choose the charitable recipient rather than the donor,” Mr. Kallina said. “The government is cutting back on our ability to give to charity, because they want to dictate where the charitable dollars go.”
Robert F. Sharpe, a Memphis planned-giving consultant, said there is an argument to be made against cutting the charitable deduction because it flies in the face of a longstanding principle that people should not be taxed on money they give voluntarily for charitable purposes.
The budget proposal, if passed, would essentially be a tariff on giving by the most-generous donors, Mr. Sharpe said. “If we need this money for social purposes,” he said, “why not tax wealthy people who do not give to charity?”
Short-Term Surge in Giving
By reducing the charitable deduction, Mr. Obama’s plan could create a short-term surge in giving, as wealthy donors rush to make gifts and take advantage of the higher current deduction levels, said Richard Steinberg, an economist at the Indiana University Center on Philanthropy who has studied elevated giving levels in 1986, the year before the tax code was changed to reduce the value of the charitable deduction.
Donations by individuals grew by 14.8 percent in 1986, to $127-billion, and then dropped to $118-billion in 1987, the year the tax change took effect, according to Giving USA, the annual tally of philanthropy.
“The obvious message is that fund raisers could use this to get more donations this year and next year, Mr. Steinberg said.
Neil Kawashima, a lawyer in Chicago who advises wealthy donors, said people who are considering types of giving that offer one-time, upfront charitable deductions on their federal taxes may especially be tempted to consider acting before the deduction rate falls.
Those would include donor-advised funds, which allow people to make contributions to special accounts, claim a deduction, and then recommend how to distribute the money to charity; and “grantor charitable lead annuity trusts,” which allow donors to set up a trust to give annual payments to charities, claim a tax deduction, and then pay taxes on the income produced by the trust.