Hatch cites impact on charities if tax write-off is cut

President Obama’s recent proposal to limit tax deductions for wealthy donors got an uncharitable welcome at a congressional hearing Tuesday.

“I am deeply concerned that the current deduction for charitable giving is under quiet assault,” said Sen. Orrin G. Hatch, Utah Republican and ranking member of the Senate Finance Committee.

“Charitable donations are the lifeblood of charities and the last thing Congress should do is interrupt the blood supply,” he said.

Leaders of religious and philanthropic groups agreed with Mr. Hatch, saying it makes no sense to make it harder for wealthy people to give to charity when so many Americans are out of work, donations are down and more people are crying for help.

The idea of tightening charitable tax deductions surfaced again in September, when Mr. Obama said his new $447 billion jobs bill could be paid for in part by a 28 percent cap on the charitable tax deduction by people with $200,000 or more in income.

The 28 percent cap appears to be moot for now. When Senate Majority Leader Harry Reid, Nevada Democrat, introduced the American Jobs Act of 2011 in early October, it included a 5.6 percent “surtax on millionaires,” but no change in the charitable tax deduction.

A charitable tax-deduction has been in the tax code almost since the beginning of the tax code, witnesses told the Senate panel. Under current law, wealthy individuals get a 35 percent tax deduction on charitable gifts — if they give $100,000, for instance, their taxable income falls by $35,000. But if the deduction was capped at 28 percent, the donor of $100,000 would see his or her taxable income fall by only $28,000, while taxable income would be boosted by $7,000.

Tightening the charitable deduction to 28 percent could bring in an estimated $320 billion in federal revenue over 10 years, according to one estimate.

Several witnesses at Tuesday’s hearing presented ways to adjust the charitable deduction, especially if the goals were to make the tax code fairer and relieve government deficits.

But nonprofit leaders passionately decried the idea of “suppressing giving” to non-government entities, particularly when the government is deep in debt and the nonprofit sector not only serves millions of people but employs millions, too.

If a reduced tax-deduction went through, it could result in the loss of $5.6 billion a year to charities — equal to “eliminating all of the private donations each year to the Red Cross, Goodwill, the YMCA, Habitat for Humanity, the Boys and Girls Club, Catholic Charities, and the American Cancer Society combined,” said Brian Gallagher, president and chief executive of United Way Worldwide.

“With 13 million employees, we are larger than the finance and real estate sectors combined,” Diana Aviv, president and chief executive of Independent Sector, said in a statement to the committee Tuesday.

And yet, the Obama administration has “targeted” the charitable deduction four times as a revenue source, Ms. Aviv told her nearly 600 member organizations earlier this month. Senate Democrats may have removed the 28 percent cap in the American Jobs Act, she said, but “it is still a part of the president’s formal recommendations to the Joint Select Committee on Deficit Reduction,” which must find $1.2 trillion in deficit reduction by Nov. 23.

Senate Finance Committee Chairman Max Baucus, Montana Democrat, did not directly address the tax-deduction battle in his opening remarks, but praised tax-exempt organizations for filling “a unique space” that government and businesses do not occupy, and urged Congress to ensure that the tax code “encourages charitable donations in the most efficient way possible.”