Outlook For Philanthropy: Issues in the 107th Congress
August 10, 2000 | Read Time: 5 minutes
ALSO SEE:
Philanthropy, Congress, and the New Administration: the Key Issues
Several Bush Nominees Have Nonprofit Experience
Recommendations for President Bush: Two Views From Nonprofit Leaders
| Issue | Background | Legislative history | Outlook |
| Charitable deductions for companies | Corporations are currently limited to claiming a charitable deduction of no more than 10 percent of their taxable income each year. | Congress has considered measures to increase the percentage that can be deducted, but such efforts have failed. | President Bush made a campaign pledge to increase the annual limit on the charitable deductions taken by corporations to 15 percent of a company’s taxable income, and says he will make this a top priority. Estimated cost over 10 years for the proposal: $1.7-billion. |
| Charitable deductions for individuals | Roughly 70 percent of all Americans cannot claim a tax deduction for their donations because they do not itemize. Such a deduction was permitted in the early 1980’s, but Congress removed the option in 1986 when it overhauled the federal tax code. | Measures in the House and Senate were introduced last year to allow people who do not itemize to deduct up to $500 each year for charitable gifts. Similar bills had been introduced in past years. President Bush has included in his tax plan a deduction for those who do not itemize; the 10-year cost is estimated at $75.8-billion. | The deduction enjoys strong bipartisan support. And President Bush continues to say that new tax incentives to increase charitable giving will be a high priority of his administration. But concerns about an economic downturn may make this proposal less popular because of the price tag. |
| Faith-based groups and federal aid | Congress included in its 1996 welfare-overhaul legislation a provision known as “charitable choice” that encourages religious groups to apply for federal money to help pay for their social-service programs. The provision permits recipients of federal dollars to require their employees to be of a particular faith, but it prohibits the use of government dollars for proselytizing. | Since 1996, several bills have been introduced in Congress to expand charitable choice to other federal programs, including those that deal with juvenile justice and literacy. Most such efforts have failed to pass after running into strong objections from critics who say the provision violates the U.S. Constitution. | This issue is a high priority for President Bush, who plans to appoint a top-level White House official to serve as an advocate for faith-based charities. Mr. Bush would like Congress to pass legislation to apply the charitable-choice provision to many types of federal grants and contracts. But some legislators are awaiting the outcome of court challenges to the provision in the welfare law before supporting efforts to apply the provision more broadly. |
| Regulation of donor-advised funds | Donor-advised funds have become one of the nation’s most-popular giving techniques, but they operate with few clear legal guidelines. People set up such funds by giving money, stock, or other assets to a community foundation or similar charity. At the time of the gift, the donors take a tax deduction. They then continue to recommend how the money they have given will be paid out to charities in the future. | Last year, the Clinton administration asked Congress to pass new rules on donor-advised funds, including requiring such funds to distribute a minimum portion of their assets each year to charity, as private foundations must do. Congressional aides have considered new regulations for donor-advised funds, but no legislation has been proposed. | This highly contentious issue is unlikely to disappear from Congressional debates, but new rules appear unlikely to be passed anytime soon. |
| Repeal of the estate tax | Many politicians want to end the estate tax, which has made some charity officials worried that a key incentive for giving could be eliminated. But other charity experts argue that even without the incentive provided by the tax, wealthy donors would continue to leave bequests. The tax is currently levied on estates of $675,000 or more, a threshold that is set to rise incrementally to $1-million by 2006. | Congress last year approved a measure to repeal the estate tax, but President Clinton vetoed it. The House of Representatives failed to override the veto. | The issue is a top contender for early consideration in this Congress. And President Bush has pledged to make repeal of the tax a high priority this year. But the equal split of Democrats and Republicans in the Senate could make passage difficult. |
| Retirement accounts and charities | Under federal law, Americans may withdraw funds without penalty from I.R.A.’s when they reach age 59½. But people with such accounts are subject to income tax on the entire amount taken out, including any funds they give to charity. | Congress passed a provision in 1999 that would have allowed people over age 70½ to roll over I.R.A. assets directly to charities and avoid being taxed on those funds. But President Clinton vetoed a comprehensive tax bill in which the provision was included. A similar measure came close to passing last year. | The strong support from both Democrats and Republicans for this provision bodes well for its passage in this session of Congress. President Bush, as part of his campaign pledge, is seeking to let people over age 59 contribute money from their I.R.A.’s to charity without paying income tax on those gifts. And the estimated cost of Mr. Bush’s proposal — $2.1-billion over 10 years — is small compared with the price tag for another charitable tax incentive proposed by Mr. Bush to give a charitable deduction to people who do not itemize. |
