24 August 2018

Treasury SALT Regulations Double-edged Sword

WASHINGTON, D.C.— The Alliance for Charitable Reform (ACR) issued the following statement on the regulations from the U.S. Department of Treasury on state initiatives seeking to workaround the federal cap on the deduction for state and local taxes.

“The proposed workarounds for the cap on the state and local tax deduction would have undermined the charitable deduction by fostering a perception that it is a tax loophole. The charitable deduction is not a loophole, it is a lifeline for millions of Americans and we are encouraged Treasury chose to uphold the authentic purpose of this century-old provision,” said Sandra Swirski, executive director of ACR.

The regulations issued by Treasury Thursday would require a taxpayer to reduce the amount claimed as a federal charitable deduction by the amount received in state-issued tax credits. The regulations allow an exception of a full federal charitable deduction if the tax credit received is 15 percent or less of the value of the contribution. The regulations apply not only to the recent SALT workaround proposals from high-tax states, but to all initiatives offering a state tax credit, such as for scholarships for low-income students and contributions for land conservation, which worries many in the charitable sector.

“The Treasury regulations rightly recognized that these workarounds would have effectively declared the government a charity, blurring and even erasing the distinction between government and civil society,” said Sean Parnell, vice president of public policy at The Philanthropy Roundtable. “Unfortunately, the regulations failed to distinguish between the tax avoidance schemes proposed by the SALT workarounds and credits to legitimate charitable programs. The Philanthropy Roundtable calls on Treasury to specifically revisit the issue of tax credits for legitimate charitable purposes.”

“We should not measure the impact of these regulations by the number of taxpayers it will affect, we should measure it by the number of low-income families that will no longer have a choice in where to educate their children. These regulations conflict with the goal of expanding education opportunities for our students, and I am concerned they will ultimately force many more children to stay in low-performing schools,” said Katherine Haley, senior director of K-12 education programs at The Philanthropy Roundtable.

Parnell sent a letter to Treasury Secretary Steven Mnuchin in July urging him to reject the efforts of high-tax states to use the charitable deduction to allow taxpayers to avoid the SALT cap but to also avoid harming legitimate charitable programs offering state tax credits. Parnell’s letter to Secretary Mnuchin can be read here.