Despite Controversy, Pending Congressional Tax Proposal Could Increase Giving, United Way Report Says

By Grant Williams

Tax legislation pending in Congress could lead to a big increase in charitable giving each year despite a controversial provision that would cause some people to lose part of their write-offs, says a new report from United Way of America.

If enacted into law, the legislation's changes in the way people take charitable deductions could result in an additional $180-million annually in contributions to United Ways across the country and billions of new dollars to charities of all kinds, the report said.

In coming weeks, members of the Senate and House of Representatives will work out differences between tax bills passed late last year by each chamber of Congress.

The Senate bill would attempt to increase donations to charity by allowing people who do not itemize deductions on their tax returns -- more than two-thirds of Americans -- to write off a portion of their charitable donations. Individuals could deduct the sums above $210 that they donate each year to nonprofit organizations; couples filing jointly could write off the amount that exceeds $420. The provision would be in effect for two years -- 2006 and 2007-- unless Congress voted to extend it.

While donors who do not itemize would gain an ability to get a tax break, another provision in the Senate bill would cause some people to lose part of their write-offs.

Donors who itemize deductions would no longer be able to claim deductions for cash and noncash gifts that together are worth $210 or less -- $420 for couples filing jointly; they could write off only the portion of their annual charitable donations that exceed that sum.

The House bill does not have any charity provisions.

Some charities have expressed concern that a new limit on charitable deductions taken by donors who itemize could offset any new donations spurred from allowing people who do not itemize to claim deductions.

The United Way of America said research shows that extending the charitable deduction to people who do not itemize would increase giving to United Ways by $242-million annually.

"This increase will be somewhat offset by an expected $62-million drop in giving by itemizing taxpayers, who would face the new $210 floor for the first time," said an announcement accompanying the report. "However, less than 6 percent of giving by itemizers to United Ways comes from donors who give less than the $210 floor to charity. Over all, the provision would substantially increase giving to both United Ways and to charities more generally."

Brian A. Gallagher, president of United Way of America, said that the legislation also deserves to be passed in order to send a message to all Americans -- including those who do not itemize, mostly people with low or moderate incomes -- that contributions to charities are highly valued by society. "It is critically important for every citizen to participate in the philanthropic process whether through volunteerism or charitable giving to help strengthen the fabric of communities," he said.

The report from United Way of America is available online at http://national.unitedway.org/files/pdf/UWAStudyofCombined
ItemizerNonitemizerDeduction.pdf.