Roger Colinvaux , associate professor, law, was quoted in a Dec. 2 New York Times article about proposed cuts to charitable tax deductions. See the article below.
From: New York Times Date: Dec. 2, 2010 Author: Stephanie Strom
With the federal government struggling to regain control over the nation's deficit, a debate is emerging over the charitable deduction and other tax policies that support nonprofit groups. What began as a proposal by the Obama administration in 2009 to reduce the deduction has become a wide-ranging discussion of what was once considered a sacred cow. Three blue-ribbon panels have proposed tinkering with the charity deduction, as has Robert B. Reich, the former labor secretary. "The administration's proposal went nowhere, but Pandora's box was cracked open then," said Diana Aviv, president of the Independent Sector, a trade group for nonprofits. Charities warn that reducing or eliminating the deduction will cause irreparable damage to the nonprofit sector. They said the proposed changes came at a time of sustained and severe declines in donations because of the recession and cuts in government contracts for nonprofits. The charities also noted an increased demand for services. "It is patently absurd that at a time when government cuts are offloading more and more responsibility on nonprofit organizations, the government would further hamper those organizations and their ability to provide the social services it cannot," said Mark Rosenman, director of Caring to Change, a project of the Aspen Institute that works to improve grant-making. But many tax and nonprofit experts say it is unreasonable for nonprofits to expect a waiver from the hard choices Congress will face as it works to live up to campaign promises to cut the deficit and reform tax laws. "It's disappointing that the charitable sector, which is broadly committed to improving the well-being of civil society, is in this case indifferent to repairing what's wrong in the country at the expense of protecting its marginal tax advantage," said Rob Reich, an associate professor of political science at Stanford University who frequently writes about nonprofits and tax policy. (He is not related to the former labor secretary.) Estimates of how much the charitable deduction costs the government are sketchy. The one most policy makers rely on is calculated by Congress's Joint Committee on Taxation, which estimates that the government will lose roughly $237 billion to the deduction from 2009 to 2013. In the 2009 proposal, the Obama administration suggested that taxpayers earning more than $250,000 could make charitable deductions at a reduced rate of 28 percent, from the current rate of 35 percent. That proposal would have used the taxes generated by lowering the rate of reduction to support the health care overhaul, and it died amid much hue and cry from the nonprofit sector. Roger Colinvaux, a law professor at Catholic University and former staff member of the Joint Committee on Taxation, said circumstances were different now. "The conversation has changed from two years ago, when it wasn't put forth as part of a broader tax reform plan but simply as a way to raise money for health care," Mr. Colinvaux said. "Now, when they're talking about tax reform in connection with deficit reduction, I think it's much harder to attack it." Ms. Aviv said that while making the rounds in Washington, she had heard three schools of thought about tinkering with the charitable deduction. One is convinced that donors are not influenced by the deduction. Another is that charitable gifts too often go to museums, universities and health research instead of human services organizations, while a third sees getting rid of the deduction as a way to lower the deficit and simplify the tax system. "When you pull these different impulses together, I think what you have is the makings of a potential change in this area in a way we haven't looked at it in a very long time," she said. All three deficit reduction proposals from the blue ribbon panels would eliminate the deduction in its current form. One of the panels, the National Commission on Fiscal Responsibility and Reform would give taxpayers a tax credit worth 12 percent of their donations - but only if they contributed 2 percent or more of their adjusted gross income to charity. Another plan proposed by a panel of three liberal-leaning organizations - Demos, the Economic Policy Institute and the Century Foundation - is similar, suggesting a 25 percent tax credit for all charitable gifts. The plan philanthropic experts find the most intriguing, however, comes from the Bipartisan Policy Center panel, which suggests borrowing a system of subsidizing nonprofits similar to the one used in Britain, called Gift Aid. Under that proposal, nonprofits could claim a tax credit worth 15 percent of any charitable gift they received, effectively giving the donor a partial match. For instance, if a donor makes a charitable gift of $100 to a charity, the charity could apply to receive an additional $15 from the government. Salvatore LaSpada, chief executive of the Institute for Philanthropy, a British philanthropic advisory and research organization, said Gift Aid was generally considered a success. Adopted in 1990, the system raises about £1 billion ($1.56 billion) for British nonprofits. "The biggest problem with the system is that it is overly bureaucratic, which translates into a lot of gift aid not being claimed, about £742 million ($1.15 billion)," Mr. LaSpada said. "Small charities have said they lost money due to the cumbersome nature of claiming the credit." Joseph J. Minarik, director of research at the Center for Economic Development and a member of the Bipartisan Policy committee, said Gift Aid was not the model for the proposal. Rather, he said, the goal of the task force was to simplify the tax code and reduce the inequity embedded in the charitable deduction, which, like other tax expenditures, rewards wealthier donors with bigger tax incentives. As for the impact its plan would have on charities, Mr. Minarik, who was the director of the Office of Management and Budget during the Clinton administration, recalled being involved in putting together the Tax Reform Act of 1986, which reduced tax rates on high-income individuals. "One of the things we heard at that time was that reducing the top bracket rates would destroy the not-for-profit sector," he said. Instead, he noted, the act reduced the value of a charitable gift to the donor by 24 percent, according to research by the nonprofit trade group Independent Sector, but the next year giving rose 10 percent.
