The Charitable Tax Deduction and the Fiscal Cliff

As we approach the December 31st deadline, Americans are wondering how—or if—Washington will act on the looming “fiscal cliff.” Charitable organizations are too.

Part of the fiscal cliff negotiation includes changes to the charitable tax deduction. The deduction, as currently written, encourages charitable giving by allowing Americans to reduce their taxable income by the amount they give to qualified charities (up to a certain percentage).

The charitable tax deduction was implemented in 1917. Although it has been discussed in many tax reform conversations, it’s never been changed. And—because it has never been changed—there are huge questions about the impact that changes could have.

Estimates on the loss of charitable dollars under several current proposals range from $1.7 up to $10 billion in the first year alone. If the deduction was ever eliminated entirely, estimated losses shoot up to 25-36% loss in giving, or $75 – $108 billion.

There are a number of factors that play into these estimates, but here are some things that we know for certain: there are 1.6 million tax-exempt organizations that employ 13.5 million people (10% of the work force) and pay them around $670 billion in wages and benefits (9% of all U.S. wages and benefits).

Charities and their staff would, of course, feel the immediate impact of a steep drop-off in giving. Perhaps most importantly though, the recipients of charities’ services would feel the impact. At a time when the government is scaling back its human services and charities are already being asked to “do more with less,” a cut in charitable donations (and thus the services they offer) could exacerbate critical problems that are all-too-prevalent already, like hunger and homelessness.

There are so many facets to this discussion. I encourage anyone to research, read and educate yourself about the changes in the charitable tax deduction and how could impact the organizations you support and the work that they do.  I also encourage you to contact your elected officials and make your concerns heard. If there was ever a time to speak up on behalf of the causes and charities that are important to you, it is now.