Options for Changing the Tax Treatment of Charitable Giving

Posted by on June 06, 2011

Changes in tax code will impact charitable giving

A new study released by the Congressional Budget Office, Options for Changing the Tax Treatment of Charitable Giving, describes how changes in the ways charitable givers make their tax deductions are likely to affect levels of giving by donors.

The study examines options such as offering deductions to those who don’t itemize their tax returns, converting tax deductions for gifts into tax credits, and offering tax breaks only to people who donate a minimum amount of money.

One of the study’s findings is that if all taxpayers had been allowed to claim deductions for charitable contributions in 2006, rather than just those who itemized their expenses, charities would have received $2 billion more in gifts. The government, meanwhile, would have lost $5.2-billion due to the loss of tax income associated with the deductions.   The CBO  estimated that individuals donated $203-billion to charity in 2006.

Another finding showed that charities would have received $10 billion less in donations in 2006 if taxpayers had been eligible only for a 15% tax credit for their charitable donations but only for amounts donated beyond 2 percent of their adjusted gross income. Conversely, the Treasury would have been $24.6 billion richer under such a change.

The CBO analyzed data from 2006 federal income-tax returns as well as information from the U.S. Census Bureau, Federal Reserve Board, and Bureau of Labor Statistics.

The study examined the impact of keeping the current deduction but making it available only to people
had donated a minimum amount, such as $500 ($1,000 for families) or 2 percent of their adjusted gross income. It also looked at extending the current deduction to people who do not itemize, turning it into a 25% tax credit, or turning it into a 15% tax credit—all of those both with and without minimum donation amounts.

To download the full report, go here.

http://www.cbo.gov/ftpdocs/121xx/doc12167/CharitableContributions.pdf