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Congress, NPOs Take Another Shot at a Universal Tax Deduction

A proposal to restore the federal Universal Charitable Deduction, which expired at the end of 2021, has been reintroduced in the U.S. Senate after failing to secure congressional passage last year.

The bill, introduced Wednesday by Sen. James Lankford (R-Oklahoma) and Sen. Chris Coons (D-Delaware), would allow taxpayers who don’t itemize to claim a below-the-line deduction for charitable giving of up to one-third of the standard deduction — which for tax year 2023 is $13,850 for individuals and $27,700 for married couples filing jointly — in addition to claiming the standard deduction itself.

Eight other senators — six Democrats and two Republicans — have signed on as co-sponsors of the bill. They include Catherine Cortez Masto (D-Nevada), Marco Rubio (R-Florida), Maggie Hassan (D-New Hampshire), Raphael Warnock (D-Georgia), Amy Klobuchar (D-Minnesota), Gary Peters (D-Michigan), Tim Scott (R-South Carolina), and Jeanne Shaheen (D-New Hampshire).

A House version of the bill, dubbed the Charitable Act, has not yet been introduced but is expected to follow soon.

Nonprofits have been calling for a Universal Charitable Deduction ever since the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction to $12,000 for individuals and $24,000 for couples as part of a reform package meant to reduce tax paperwork. The change reduced the incentive to itemize for all but 12% of taxpayers, thus taking away their tax incentive for charitable donations.

Congress later instituted a temporary Universal Charitable Deduction of $300 for all tax filers as part of the CARES Act of 2020 and added a $600 deduction for married couples filing jointly in 2021, but both have since expired.

Numerous nonprofit leaders have since pressed for restoration of the deduction, which they say would alleviate some of the funding difficulties the sector is facing at a time many nonprofits are seeing increased demand for services while also stepping in to fill the void left by the sunsetting of pandemic-era government programs.

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“Charitable giving has not kept up with inflation, let alone met increasing community needs,” said Tim Delaney, president and CEO of the National Council of Nonprofits. “The Charitable Act proposes sound tax policy that would incentivize millions more taxpayers to give to their local community-based organizations, enabling people to feel more invested in, engaged with, and supportive of the collective success of their neighbors and community.”

Whether the legislation has the momentum it needs to pass this year remains to be seen. Mark Micali, vice president of government affairs for The Nonprofit Alliance in Washington, D.C., thinks the bill has sufficient bipartisan support to pass if another charity-related or tax-related legislative proposal emerges to which it can be attached.

“I think there is the political support for this, I really do,” Micali told The NonProfit Times. “Its two main sponsors — one a Republican from Oklahoma, the other a Democrat from Delaware — are both very determined to get this done. The problem is it cannot pass as a standalone bill. Very few bills do unless they have virtually unanimous support.”

Still, the policy rationale for the bill is strong, he said. “Only 12% of taxpayers itemize their taxes and thus can claim a deduction when they make a charitable contribution while 88% of Americans cannot, so it’s a good policy proposal. But the challenge will not be the issue itself but whether there’s a legislative vehicle it can be attached to,” Micali said.

David Thompson, vice president of public policy at The National Council of Nonprofits, is less optimistic the current bill will pass but still hopes a deal of some sort can be reached.

“The reason for introducing the bill now is to put before Congress the clear message that charitable nonprofits need additional resources today, when the needs of the people we serve are great,” Thompson told The NonProfit Times. “Passage of the freestanding bill is unlikely, but the strong, bipartisan support the Charitable Act enjoys disrupts the narrative that Congress can’t get along and lays the groundwork for passage of all or some of the enhanced giving incentives as part of other legislation this year.”

This article was originally published by The NonProfit Times.