February 23, 2006 | Read Time: 2 minutes
The federal budget proposal President Bush submitted to Congress this month could have an impact on how much charities raise in private donations.
As he has done for the past several years, Mr. Bush proposed a package of tax incentives designed to spur charitable giving. He also asked Congress to make permanent several temporary tax breaks, including repeal of the estate tax.
Under current law, the estate tax will be phased out gradually in coming years, then will be repealed entirely for one year in 2010. After 2010, without a new law, the tax will be restored.
Many nonprofit organizations worry that permanent repeal of the tax would eliminate a powerful incentive for wealthy donors to make charitable bequests.
And the president again sought tighter regulation of charities in his budget.
He asked Congress to enact legislation that would penalize charities that fail to enforce “conservation easements,” which are donated to environmental and historic-preservation groups and limit development of land or property.
Mr. Bush’s plan would impose “significant” penalties — an amount was not specified — on charities that fail to make sure such easements are being respected over time, especially as properties are developed or sold.
Tightening the rules on easements would help the federal government bring in $91-million over the next decade, the administration estimated.
Among the proposals in the 10-year, $7.8-billion package of tax breaks that would affect charities:
- Allow people age 65 or older to make charitable gifts directly from their individual retirement accounts without paying income taxes on the donated amounts. Estimated cost to the Treasury, according to Mr. Bush: $102-million in 2007; $4.7-billion over 10 years.
- Extend to all companies the tax deductions now available to certain types of businesses that donate food to food banks. The proposal also would increase the value of the deduction. Estimated cost: $44-million in 2007; $1.3-billion over 10 years.
- Lower the federal excise tax on private foundations to 1 percent. Foundations currently must pay an excise tax of up to 2 percent on their investment income. Grant makers say that lower taxes would enable them to give more money to charities. Estimated cost: $56-million in 2007; $1-billion over 10 years.
- Require charitable remainder trusts that earn unrelated business income to pay a 100-percent excise tax on that income. Currently, charitable remainder trusts that earn any unrelated business income lose their federal tax exemption on the entire trust during the year in which the income was earned. The administration says its proposed change would be sufficient to discourage such trusts from investing in business unrelated to the charity’s mission, without taking the harsher step of removing the tax exemption. Estimated cost: $1-million in 2007; $62-million over 10 years.
