As the Trump Administration begins its work on a comprehensive tax reform proposal, there is growing speculation that the White House may consider capping the charitable deduction as a way to raise revenue for broader tax reform goals.
While the idea of limiting charitable giving has not gained widespread acceptance among administration officials, it has been described as being “in the realm of possibility” of a component of the developing Trump tax plan.
President Obama infamously proposed a 28 percent cap on all itemized deductions, including the charitable deduction, in each of his administration’s budgets. The proposal would have reportedly raised over $542 billion over 10 years, but it was defeated by charitable community and members of both parties who raised concerns about the impact on charitable giving.
Former Ways and Means Committee Chairman Dave Camp (R-MI) in 2014 proposed limiting charitable contributions by only allowing taxpayers to deduct charitable gifts in excess of 2 percent of their income, which the nonpartisan Tax Policy Center estimated would have reduced charitable giving by as much as $34 billion.
As the Republican nominee for president, President Trump released an outline of tax reform priorities that included a total dollar cap for all itemized deductions ($100,000 for individuals; $200,000 for couples). The American Enterprise Institute estimates that such a proposal could lead to a loss of roughly $17 billion in charitable giving per year, and the nonpartisan Tax Policy Center suggested that those earning incomes over $1 million, due to the priority of other deductions, could lose the charitable incentive completely. The proposal was thought to be scrapped when the administration announced it was starting from scratch on its tax reform work; however, revenue raising challenges have apparently put it back on the table for some examination.
Capping the charitable deduction has been widely unpopular in the past, but it may yet again become a target for revenue as tax reform debates move forward.
Independent Sector opposes any effort to cap the charitable tax deduction and views tax reform as an opportunity to, as House Ways and Means Committee Chairman Kevin Brady (R-TX) has said on numerous occasions, “unlock more charitable giving.”
Visit Giving100.org to learn more about the 100-year tradition of the charitable deduction and how you can help to strengthen and expand this powerful giving incentive.
Jamie Tucker is the director, public policy strategy and operations at Independent Sector.