policy and advocacy

Issue Brief - Enhancing Tax Deductibility for Charitable Gifts

Encouraging Charitable Gifts to Arts and Culture
Support America's Nonprofit Arts Organizations

ACTION NEEDED
We urge Congress to:

• Enact charitable incentives identical to the CARE Act that the House and Senate passed in the 108th Congress but never sent to conference committee.  As passed by the Senate, the CARE Act provisions would:
• enable individuals to roll funds from their IRAs to charity without paying withdrawal penalty; and
• allow artists to take a fair-market value deduction for contributions of their own works to arts organizations (See Artists’ Fair-Market Value Deduction Brief)
• Protect and enhance incentives for charitable giving in the event of major tax reform, including tax deductibility for in-kind gifts
• Oppose unnecessary restrictions on charitable governance, such as limiting the number of directors on a charity’s board.

TALKING POINTS

• The tax treatment of charitable contributions has a significant effect on both the amount and the composition of personal gifts because people give more if they can deduct their contributions.  For example, Congress passed the Tsunami Relief Act (H.R. 241), allowing people to take a 2004 deduction for gifts made until the end of January 2005, because it understood that people give more if gifts are deductible.  So urgent was the need that the House passed the bill without objection, and the Senate by unanimous consent.
• More gifts will expand charitable services and provide a net benefit to the public.  America’s nonprofit arts and culture institutions are protectors and enhancers of our cultural heritage, and important participants in education for children and adults. They are also proven magnets for tourism and other business activity.
• In-kind gifts are of prime importance to arts and cultural organizations.  Many cultural organizations, such as museums and libraries, depend on gifts to build their collections.  Others benefit from gifts of land and other in-kind property.  Such gifts are often unique and cannot be replaced by an equivalent amount of cash.
• New charitable incentives have the support of both political parties and the White House.  President Bush supports several of the CARE Act charitable incentives.  During the last Congress, the House and Senate passed the CARE Act by overwhelming margins (Senate: 95-5, House: 408-13).
• Future reform of the tax code, such as to the estate tax, should be structured to encourage charitable giving, not discourage it.  According to a recent study by the Congressional Budget Office, if the federal estate tax had not existed in 2000, charitable donations would have been reduced by a stunning $13 billion to $25 billion that year.
• Arts and culture institutions are characterized by good governance, strong codes of ethics, and wise stewardship of assets held in trust for the public good.  Arts institutions have a successful record of self-governance, both individually and as a field.

BACKGROUND
Enlightened tax policy has been critically important to the development and sustained vitality of nonprofit arts and cultural organizations.  In 1913, when Congress initiated the Federal income tax, it recognized the important public purposes of nonprofit organizations – including arts organizations – by exempting them from paying the tax. The tax deduction for charitable gifts was enacted in 1917, acknowledging the important educational, literary and charitable roles that the nonprofit arts sector plays in American society.  Since that time, Congress has repeatedly reaffirmed the importance of encouraging tax-deductible charitable gifts.  Over the last four years, President Bush has offered a package to increase charitable giving. 

This year we continue to support legislation that would provide a deduction for charitable gifts to taxpayers who do not itemize their returns, enable individuals to roll over IRA funds to charities without penalty, and allow artists to take a fair-market value deduction for giving their own works to charities. 

In 2003, the Senate-approved CARE Act (S. 476) provided these and other tax provisions, including offsetting revenue raisers; the House-passed Charitable Giving Act of 2003 (H.R. 7) included the IRA rollover and non-itemizer provisions but not the artists’ deduction provision. Both bills passed by overwhelming, bipartisan margins, but partisan procedural concerns prevented a House-Senate conference at the end of 2003 and during all of 2004.  As a result, these bills never made it to conference.  As of February 8, 2005, Senator Rick Santorum (R-PA) expects to introduce them as a stand-alone bill for the 109th Congress in the near future.  The artist deduction provision has also been introduced in the Senate as a stand-alone (S. 372) and it is anticipated that it will be introduced in the House as well.

Of course, Congress is also considering tax reform, and the House Ways and Means and Senate Finance Committees are specifically looking at a variety of proposals to reform charitable governance.  Some of the proposals – such as a limiting the number of people who may serve on a charity’s board – are impractical. 

Finally, the Joint Committee on Taxation has proposed various limitations on deductibility for in-kind gifts.  Similar drastic restrictions were actually imposed by the Tax Reform Act of 1986; they caused such a precipitous drop in giving that they were partially repealed in 1990, and fully repealed in 1993.  We urge Congress not to re-create that drop in giving.