Washington Proposals that Affect the Charitable Deduction

House Republican Blueprint: In July 2016, Speaker of the House Paul Ryan (R-WI) and Ways and Means Chairman Kevin Brady (R-TX) released a tax reform blueprint aimed at simplifying the tax code. The big picture is that the blueprint reduces the current seven rates of taxes for individuals to three rates: a top rate of 33 percent, followed by 25 percent and 12 percent. It reduces the corporate rate to 20 percent and creates a separate top rate of 25 percent on income from small businesses. The blueprint also eliminates all tax benefits, except for charitable giving and home mortgage interest.

The blueprint expands the standard deduction for taxpayers, something that will greatly simplify tax filings for a whole lot of people. In doing so, the blueprint aims to “reduce the number of taxpayers who itemize their deductions from about one-third under current law to approximately 5 percent under our simpler, fairer, and flatter tax system.” Simplifying tax preparation makes sense. However, if the number of taxpayers who itemize goes from one-third to 5 percent, we worry that the 28 percent that no longer itemize will rethink the size and timing of their gifts. Even if the structure of the charitable deduction does not change, the number of people who give more—at least in part because of the deduction—will change.

President Trump Tax Reform Plan: In September 2016, Donald Trump released an updated tax reform proposal that, in contrast to his first proposal, would significantly cap the charitable deduction. Trump’s first tax reform proposal, which was released in September 2015, preserved the current charitable deduction. The current iteration of Trump’s plan would cap all itemized deductions—including the charitable deduction, mortgage interest deduction, and state and local taxes paid—to $100,000 for individuals and $200,000 for couples. This provision hits exactly those donors that account for the bulk of individual giving.

To see previous proposals to reform the charitable deduction, click here.

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