Given current concerns about the federal deficit, legislators are considering various spending cuts as well as new revenue sources. Among the ideas that have been offered is a proposal to limit itemized deductions, including the tax deduction for charitable donations.
Studies of charitable giving indicate that tax deductions are firmly among the many factors leading donors to make gifts. At this time when resources for public and independent higher education institutions have been dramatically restricted or diminishing, we ask Congress not to impose barriers limiting charitable giving.
Since 1917, our tax laws have incorporated the policy that income voluntarily given to charitable organizations, and thus not available for personal consumption, should not be subject to tax. As a result, individuals who itemize their deductions on Schedule A are allowed to subtract from their income specific donations they have made to churches, schools, charities, hospitals, colleges, and other charitable organizations. Individuals who claim the standard deduction, a portion of which is meant to account for their charitable giving, are similarly not being taxed on their donations, albeit in a less precise manner.
U.S. tax policy should encourage individuals to give and the charitable deduction does exactly that. As governments and nonprofit organizations alike struggle to meet increased demands for their services, we need to encourage all individuals, regardless of income and wealth, to give more to organizations that provide wide-ranging services and societal benefits. Reducing the value of the charitable deduction would have the opposite impact.
While the proposal is targeted to increase the tax paid by wealthier individuals, it is institutions such as colleges and universities, as well as charities and other nonprofit organizations, which will bear the brunt of a cap on or reduction in the charitable deduction.
A review by the American Association of State Colleges and Universities of approved budgets for fiscal year 2012 shows historic cuts in state operating support for four-year public universities. All told, the collective average change for the states included in the analysis was a negative 6.4 percent. Fifteen states witnessed double-digit decreases. These cuts come on the heels of funding reductions of two percent in 2009 and three percent in 2010. According to the State Higher Education Executive Officers (SHEEO), per-student state support for public higher education is now at its lowest level in 30 years.
As federal and state governments continue to cut funding for higher education-from student aid to research support-charitable donations have become an integral component in helping colleges and universities achieve their teaching, research and public service missions.