We should do more to help Americans help each other. First, we should help faith-based organizations to do more to fight poverty and drug abuse, and help people get back on the right track, with initiatives like Second Chance Homes that do so much to help unwed teen mothers. Second, we should support Americans who tithe and contribute to charities, but don't earn enough to claim a tax deduction for it. Tonight, I propose new tax incentives that would allow low- and middle-income citizens who don't itemize to get that deduction. It's nothing but fair, and it will get more people to give."
—President William J. Clinton, State of the Union Address, January 27, 2000
In his final State of the Union address, President William J. Clinton proposed that the federal government support faith-based organizations' efforts to combat poverty and drug abuse. He also advocated allowing taxpayers who do not itemize on their federal income tax returns to take deductions for charitable contributions. "It's nothing but fair," he observed, "and it will get more people to give."
A White House press release outlined the details of the president's tax initiatives to promote philanthropy. Clinton proposes allowing taxpayers who do not itemize to deduct 50 percent of their charitable donations over $500 from their federal income tax. "This proposal," the administration maintains, "would boost contributions to charitable organizations, particularly community and faith-based groups, and improve tax fairness by giving nonitemizers the same opportunity to deduct contributions as itemizers."
The president also proposes changing the excise tax that foundations pay to a flat 1.25 percent. Currently foundations are taxed 1 percent on investments and a second 1 percent if they do not give at the same rate over five years. The White House finds this system "unduly complicated" and contends that it "can reduce giving in certain cases, since boosting gifts in times of need exposes foundations to higher taxes if, after the need has passed, their rate of giving drops back to earlier levels."
Finally Clinton wants to give taxpayers larger deductions for donating appreciated assets, such as real estate and stocks, to charities and foundations. Deductions for donating such assets to charities are presently limited to 30 percent of a taxpayer's adjusted gross income (AGI); deductions for gifts of appreciated assets to foundations are limited to 20 percent of the filer's AGI. The president advocates raising those rates to 50 percent for gifts to charities and 30 percent for donations to foundations. The White House anticipates that these changes would "create greater incentive for such gifts."
If adopted the president's tax initiatives would cost $14 billion over 10 years.
The preceding post is by Suzanne Coffman, GuideStar’s editorial director. See more of Suzanne’s sector findings and musings on philanthropy here on our blog.