Saturday, July 19, 2014
Unsurprisingly, the U.S. House passed charitable giving legislation, the “America Gives More Act,” on July 17 by a vote of 277-130. (For a summary of the bill’s contents, see prior blog post.) Broadly, the bill would encourage food donations, transfers from IRAs, conservation easement donations, extend the time to claim charitable deductions to April 15, and reduce the tax on private foundation investment income. According to the Joint Committee on Taxation, the legislation would cost taxpayers $16.2 billion over ten years.
Supporters of the bill (mostly Republicans) emphasized familiar themes. Charitable giving legislation is good because giving helps those in need (see, e.g., Chairman Camp's floor statement, Majority Whip McCarthy's statement) and because giving itself should be encouraged. The bill was also praised as a simplification (Statement of Representative Griffin) (though only one of the five provisions simplifies the Code).
Opponents of the bill (all Democrats, but one), though praiseworthy of charitable giving in general, cited in particular the failure to pay for the tax benefits and the resulting increase in the deficit. (Floor statement of Representative Levin, the White House.) The White House also objected that the giving incentives would benefit high-income taxpayers. One Democrat, Representative Lloyd Doggett, objected on substantive grounds, saying that the incentives for donations of food inventory encouraged donations of items with "no nutritional value, like Twinkies, candy, stale potato chips, and expired foods.” “We do not need a permanent tax break for Twinkies” he said. (Video of Mr. Doggett's commentary on the food proposal here.)
How to assess the legislation? Helping “the needy” certainly is a familiar rationale cited in support of charitable giving legislation. But it bears repeating that “the needy” is but one segment of the 501(c)(3) sector. (Additional commentary on who benefits from the charitable deduction here). Broad-based charitable giving incentives such as extending the filing deadline and encouraging more IRA transfers are not directed toward helping the needy. Thus, if this really is a goal of lawmakers, much more targeted legislation to benefit social safety net organizations would be more appropriate.
Further, it is hard to ignore the absence of offsets. When tax benefits like these are not paid for, the question should be whether the America Gives More Act is the best use of $16.2 billion dollars. It is ironic that about 64 percent of the Act’s cost comes from extending two provisions (the special rule for food donations and the exclusion for IRA distributions) that were allowed to expire in the Tax Reform Act, which undermines the argument that this legislation is an optimal use of tax dollars.
Other provisions have some merit, depending on the goal. Extending the time to claim donations to April 15 may be a cost effective way to get more dollars to 501(c)(3) organizations, assuming the IRS can administer the provision to protect against double deductions.
Streamlining the excise tax on private foundations will likely result in diverting dollars from the U.S. Treasury to foundation grantees – sort of an inter-501(c)(3) sector transfer. This may be desirable, depending on one's judgment about whether foundations or the government spends money more in the public interest. But the provision does not result in new charitable dollars and so is not a giving incentive.
The permanent extension and expansion of the special rules for deductions of conservation easements without any associated reforms is harder to understand, given the many administrative difficulties and abuses associated with this provision of the tax Code. (For commentary, see Halperin, McLaughlin, Colinvaux).
So although there may be merit in the margins to some provisions, as a whole, the case for the legislation without offsets is rather underwhelming. If there were offsets, then at least the trade-offs could be more directly assessed.
In short, although it is obvious that the America Gives More Act is not intended as a tax reform measure but rather reflects legislative business as usual, nonetheless it is disappointing to see more give-aways without much if any consideration of who should pay, and whether the give-aways are really worth it. But without an offset, there is little electoral cost to voting in favor of legislation, especially charitable giving legislation, which is always easy to frame, without much analysis, as helping those in need.