One big issue that NAO is tracking at both the federal and state level is the possible caps and/or cuts to the charitable deduction. At the federal level, the incoming Trump administration has already floated a revised tax reform plan that limits the deductions taxpayers may take, including the deduction for charitable contributions. The first tax reform proposal offered by Trump last year preserved the current charitable deduction. This latest version proposes to cap all itemized deductions - including the charitable deduction, mortgage interest deduction, and state and local taxes paid - to $100,000 for single filers and $200,000 for couples. The Trump plan also would eliminate federal estate and gift taxes while eliminating step-up basis for estates valued at more than $10 million.
In Oregon, the Legislature has already begun to look at possible revenue streams for a state budget that is in deficit. It is believed that one source of funding that may be considered is from cuts or caps on Oregon's charitable deduction. The signs are that the state needs money and is working to identify sources for the funding they project to spend. On December 1st, Governor Kate Brown released her
2017-19 biennium budget. The Governor's budget is usually based on revenue sources currently available to the state through the General Fund and other funding sources. The budget submitted by Governor Brown this year assumed tax revenue from several sources that do not currently exist. It is important to note that new taxes require a 2/3 majority vote of the Legislature, while capping something like the charitable deduction would only require a simple majority vote.
Why should nonprofits be concerned about caps to the charitable deduction at either the federal or state level? Study after study have shown that caps or cuts to the charitable deduction at both the federal or state level have a negative effect on charitable giving. Nonprofits have many different business models to meet their missions, but all rely on charitable contributions to do their important work. The concept of cutting, curtailing or sunsetting the charitable deduction is fundamentally flawed as it assumes revenue to the government is more important than support to charities and that curtailing the charitable deduction will have minimum effects.
We believe that nonprofits should stand strong on the philosophy that the charitable deduction is a "lifeline, not a loophole" (R. Wyden 2012). We should not bargain on a modification - "no haircut, no sunset, no cuts" to the deduction. The deduction is proven to have multiplier effects for every dollar given and is the
only
tax deduction that has that capacity. To limit it in any way (even at the top end of giving) causes a reduction in total benefit to Oregon's communities.
- About 88 percent of voters believe we should make it easier for people to deduct charitable contributions from their taxes.
- About 74 percent of voters trust charities with their checkbooks over the government and want to see expanded access to charitable giving.
Now is not the time for either President-elect Trump or Governor Brown to cap or curtail the charitable deduction. Our communities count on nonprofits and nonprofits count on the charitable deduction.