WASHINGTON Feb 14 Charitable groups pleaded
with U.S. lawmakers on Thursday not to alter the federal tax
break for donations, while some Democrats said the popular
deduction was in no danger and called the Republican-convened
hearing a red herring.
Officials from hospitals and dozens of other non-profit
groups packed a House of Representatives' Ways and Means
Committee session examining the write-off used by more than 30
million Americans at a cost to taxpayers of $38 billion a year.
A repeal of the charitable donations deduction is not
imminent, but plans to cap tax breaks generally for the affluent
are backed by President Barack Obama. Some Republicans, too,
have expressed support for such an idea.
"Please don't be fooled into thinking that limiting the
charitable deduction will only impact wealthy taxpayers," said
Brian Gallagher, president of the non-profit group, United Way
Worldwide, who spoke on the first of six panels testifying
before the committee.
Limiting the break "would have a far greater impact on
charitable giving than many estimates and significantly affect
our sector's ability to deliver social services," said
Gallagher, who has spent more than 30 years studying why donors
According to an analysis by the Tax Policy Center presented
at the hearing, under one proposal to cap deductions, giving to
charities could fall by between 2.5 percent and 4.8 percent.
Dave Camp, chairman of the House panel, fought off criticism
from Democrats who said that by calling the hearing he caused an
unnecessary stir in the non-profit community.
"Our nation's public charities and private foundations
perform invaluable services for our society," he said.
The Ohio Republican aims to propose legislation to revamp
the tax code this year. Senate Finance Committee Chairman Max
Baucus, a Montana Democrat, is working on his own plan.
Some Democrats have recently called for limiting tax
"loopholes" and other tax breaks for the wealthy. They have not
targeted the donations deduction, but a White House deductions
cap proposal may reappear in Obama's forthcoming budget plan.
"The charitable deduction is not a loophole," said Sandy
Levin, the top Ways and Means Democrat. But he said that any
limitation should not be considered a "transfer to the
government," as one of the witnesses suggested.
The wealthy do get more out of the donations deduction than
others. Congress' Joint Committee on Taxation said 20 percent of
the tax break's benefits go to those earning less than $100,000
a year, while those with incomes above $200,000 get 55 percent.
Levin questioned the timing of the hearing, when an $85
billion cut to federal spending is set to take place on March 1
and the parties are still far apart on preventing these cuts.
"We are holding this hearing on an important, but not very
immediate topic," he said.
Gifts to charity are tax deductible in the United States,
along with mortgage interest and other expenses. Taxpayers can
cut their tax bills by adding up these deductions and taking the
total off their taxable income.
Wealthy people can benefit more than those with lower
incomes as their deductions lower their income in the highest
tax bracket of 40 percent, while others would apply the
deductions to their lower tax rates, saving them less money.
Creating a donations tax credit for those who do not claim
deductions and improving enforcement of abuse were among the
ideas suggested by experts and industry officials.
The charitable giving deduction is one of the 10 costliest
individual "tax expenditures," or provisions of the tax code
that favor certain groups or activities with preferential
Xavier Becerra, a California Democrat, said that despite the
great work done by non-profit groups, the deduction must be
examined so that taxpayer dollars were used effectively.
For example, he noted wealthier donors tended to give to
organizations that do less than other groups to meet basic needs
of the poor.
Because of the pressure to limit federal spending, he said,
"this important sector does deserve some critical examination."