The Senate's version of the tax bill passed last week reinstates a provision that has been tried and found wanting before--a charitable contribution deduction for those who do not itemize.
The standard deduction is permitted to all taxpayers if they do not want to itemize. Taxpayers do not itemize when their itemizable deductible expenses are less than the standard deduction. So the standard deduction already covers the charitable contributions of those non-itemizers. To provide an additional deduction is to provide preferential treatment to those kinds of expenses over other expenses incurred by non-itemizers and "wrapped into" the standard deduction.
What is the rationale? One suspects that this is another way that the Republican majority is reaching out to its Christian conservative base. Many Christian churches expect their members to tithe--to give one-tenth of their income to the church. Although many members fail that mark, they do give weekly, monthly or annually. So one of the biggest beneficiaries of the additional contribution deduction may be Christian churches that receive slightly larger contributions once members realize that they will get a bonus tax break.
Does that mean there is a constitutional problem here amounting to support for religion? The answer surely is no. Although the deduction may cater to one religious group, it is nondiscriminatory on its face and would pass constitutional muster.
Is this a tax break that is intended to help the people at the bottom of the wage scale who still find some small amount to contribute to help those needier than they? Interestingly, this provision will not be available to the widow who contributes her mite. There is a floor below which contributions will not be deductible. In other words, you have to have enough money to make contributions of at least $210 for singles, $410 for joint filers in order to utilize the special deduction. This may have been intended to limit the tax cost--many taxpayers who give only $100 or $150 a year would not be able to deduct their contributions. Perhaps the idea was that the deductible amount should be sufficient to function as a goal that would incentivize giving. It seems odd, however, that it should be set to benefit those who give more (and are likely better off) rather than those who give some, even if they are at the bottom of the income scale.
All in all, this is hard to justify. It appears to be just another tax break that attempts to let the government off the hook on providing safety nets by claiming that charitable institutions can fill the bill.
The Senate rules do at least add some anti-abuse measures to curb the spate of tax shelters that take advantage of the tax-exempt status of non-profit organizations to route taxable income to the organizations while ensuring that the actual cash comes to the tax shelter purchaser. Tax-exempt organizations will be subject to penalty for participating directly or indirectly in tax shelters. The use of donor-advised funds will also be restricted.
In summary, the anti-abuse provisions make sense. It's high time that Congress acted to prohibit tax-exempt organizations from taking part in tax shelters where they soak up taxable income without having to bear the tax burden and get paid a juicy fee for their effort. But the new incentives for charitable giving do not make sense. They amount to a further drain on tax resources when deficits are already hitting the $300 billion mark annually.
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