Washington • A Republican tax plan being debated on Capitol Hill maintains the deduction for charitable giving but still may have an unintended consequence that could hurt donations to churches and nonprofit groups.
The impact of the tax bill — if passed and signed into law — could mean less revenue for the LDS Church and other denominations and faith-based organizations as well as groups like the Salvation Army, Goodwill and humanitarian operations.
One study shows the GOP tax plan could lessen giving by nearly 5 percent even as Republicans are defending the legislation as protecting churches and nonprofits.
The main issue is the proposal to double the standard deduction most taxpayers take. That means fewer Americans will itemize and take a write off for charitable giving.
“In general, it will have a big impact on the faith sector,” says Brian Walsh, executive director of the Faith and Giving Coalition.
The concern had gone largely unnoticed in the GOP pitch to overhaul the tax code, an effort that will be overseen in part by Sen. Orrin Hatch, a Utah Republican who heads the powerful Senate Finance Committee.
“Up until we started raising awareness and educating on Capitol Hill, there had been a belief that people of faith give out of duty and devotion and pay no attention to their tax bill,” Walsh says. “But the reality is that people of faith are motivated by faith and reason. And if you give them tax incentive or if their tax bill is lesser, they’re going to give more. Tax disincentives means they’re going to give less.”
The Republican proposal seeks to double the standard deduction to $11,000 for individuals and $22,000 for married couples, a change that could result in only about 5 percent of Americans itemizing deductions for such things as charitable giving and mortgage interest as compared to a third who do so now. The top tax rate also would be reduced to 35 percent under the plan.
A study by the Indiana University Lilly Family School of Philanthropy found that expanding the standard deduction and decreasing the top marginal tax rate — as the Republican legislation does — could decrease giving between $4.9 billion and $13.1 billion annually. That cut could mean a reduction in donations to religious organizations by as much as 4.7 percent and other charitable groups by 4.4 percent.
Hatch’s office says he is aware of the concern, and it will be on top of his mind as the tax reform process unfolds.
“Senator Hatch is focused on tax reform that works best for everyone, but fully recognizes the difficulty of balancing competing interests when it comes to issues like deductions,” said Hatch spokesman Matt Whitlock. “While it may be difficult to predict how certain tax code adjustments will affect things like charitable giving, he is working to find the proper balance.”
The Utah-based Church of Jesus Christ of Latter-day Saints, which asks its members to donate 10 percent of their income, declined to comment on the tax proposal.
Rep. Chris Stewart, a Utah Republican who, like the rest of the state’s delegation, is an active Mormon, says he’s concerned the tax plan could hurt charitable giving.
“It’s one of the things that we’ve been looking at as carefully as we can on this,” Stewart said in an interview. “It’s not just the LDS Church or any church that would be affected by it. Any other charitable organization would be affected by it and probably be affected more deeply because a lot of people pay their tithing or contribute to churches for reasons other than the good that it might do. They do that out of religious conviction, but they may not contribute to the Salvation Army in the same way.”
Jean Hill, government liaison for the Catholic Diocese of Salt Lake City, said government and charitable organizations need to work together to “protect the dignity of all lives within our nation.”
“Religious and other charitable organizations are often the place people in poverty, people suffering from addiction, people in crisis turn,” Hill said. “If government policies are likely to impede the ability of charitable organizations to do our part, then elected officials either need to change the policy or determine how they will fill in the gaps in services that will result from their decisions.”
Rep. Mia Love, R-Utah, said she supports the overall goals of the tax plan in that it seeks to reduce taxes for most people and boost businesses by giving them incentives to hire more and keep their headquarters in the United States.
“It has also been a priority for me that charitable deductions are maintained as a part of the tax reform package, and I will be mindful of any potential unintended consequences that could be harmful to churches and nonprofits,” Love said in a statement.
While the tax reform effort does keep the charitable deduction, the Faith and Giving Coalition and similar groups argue that to truly protect nonprofits and churches, Congress should pass a universal deduction for charitable giving. Such a deduction would come on top of a standard deduction so taxpayers could write off donations whether they itemize or not.
The Indiana University study showed such a move would offset any potential losses in tax reform and could net $4.8 billion in more giving annually.
Stewart says that’s being discussed but may not be included in the final bill.
“It’s a possibility,” Stewart said. “I’m not sure I think it would be likely.”
In the end, Rep. Rob Bishop, R-Utah, says he’s not concerned that the effort to revise the tax code will hurt donations to churches and criticized those who believe people only give to charity to help their tax bill.
“Those who sincerely donate to their faith or cause, do so by the principle of charity,” Bishop said in a statement. “Legislation based on the assumption that people give simply for a tax write-off is overly cynical and sad.”