The Government’s Role In Helping Us Live Generously

As the U.S. federal government approaches the January 1 “fiscal cliff” deadline, there continues to be discussion around closing tax “loopholes” in an effort to increase tax receipts.  As has been discussed previously, the charitable gift deduction has gotten swept up into this conversation.  It would appear that there are 4 ways in which the charitable gift deduction could be limited or reduced come 2013:

  1. Place a dollar cap on all allowable deductions – including charitable gifts;
  2. Reduce the value of the charitable deduction for upper-income folks by limiting their deductions to the 28% bracket rather than than the higher 2012 marginal tax brackets of 33 and 35% (which will be 36 and 39.6% respectively if the Bush-era tax cuts are allowed to expire);
  3. Place a 2% of adjusted gross income floor for the charitable deduction coupled with with a 15% cap (or they may use some other percentages);
  4. Allow a 12% tax credit in lieu of a charitable deduction.

There is no doubt that difficult decisions will need to made in the coming weeks, months, and years to reshape the U.S. economy and fiscal environment.  But this is far from the first time our country has had to make similarly difficult decisions.

Take two minutes to watch this video.

Now share it with others and encourage them to contact their congressional members to keep the charitable gift deduction untouched.

Giving is not simply another tax loophole.  Morally and for all intents and purposes, the charitable giving deduction shouldn’t be viewed through the same lens as, say, the mortgage interest deduction for a second home.  I’m all for people owning 2, 3, even 5 homes!  But, the best version of our society is realized not through multiple home ownership.  Instead, the very best version of our society is realized when people give to help others – in all ways, but especially financially.  And remember the discussion to limit or reduce the charitable gift deduction is on top of the limits that are already in place.  Depending on the type of gift and the charity’s classification, the upper limits of deduction are 20, 30, or 50% of the donor’s AGI.

Our non-profit enterprises and the degree to which Americans give financially remain the marvel and envy of the rest of the world.  On average, Americans give away close to 2% of GDP annually.  The closest countries?  Our friends in Canada and England each give away about 1% of GDP annually (the actual statistics fluctuate based on the study, but these numbers are close).   Our current tax treatment of charitable gifts is an important thread holding the patchwork of U.S. generosity firmly in place.

There is an old public policy axiom: “Activities that are taxed occur less frequently.  Activities that are subsidized in the tax code occur more frequently.”  For our benefit – as individuals, families, communities, and as a society- and for the benefit of the rest of the world which aspires to model charitable giving after the U.S. – let’s keep encouraging the behaviors that makes us all better.


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