Issue Background

The CARE Act of 2002 includes a provision, the charitable deduction for non-itemizers, that will allow all taxpayers to deduct their charitable contributions from their taxable income bringing a measure of fairness to a large segment (86%) of US taxpayers, those who do not itemize their deductions.

From 1982 to 1986, federal tax law permitted all taxpayers to deduct their charitable contributions regardless of whether they opted for the standard deduction or itemized their deductions separately. When they were allowed to deduct 50% of their contributions, non-itemizers contributed $9.5 billion to charity in 1985.By contrast, in 1986 when they were allowed to deduct 100% of their contributions, giving rose to $13.4 billion, a nearly 40% increase. Unfortunately, that provision was allowed to sunset at the end of 1986.

The CARE Act of 2002 would reenact the non-itemizer tax deduction for all Americans by allowing taxpayers who take the standard deduction to deduct charitable contributions up to a maximum of $400 for individual filers or $800 for joint filers. The provision would be in effect for two years, providing sufficient time to assess the impact of the deduction on federal tax revenues and on charitable giving before Congress decides whether or not to extend the deduction for a longer period or make it permanent.

Reenacting this fair tax deduction for all taxpayers would send a powerful message that we as Americans highly value and strongly support charitable giving and provide needed tax relief to low-and-middle-income taxpayers who give back to their communities.

All types of charitable organizations benefit from increased giving

Any nonprofit organization that relies on contributions from taxpayers at all income levels could benefit from the charitable contributions incentive. While religious organizations and community-based human service providers tend to receive a greater portion of gifts from individuals, a wide range of nonprofits could benefit from new or increased giving by young and old taxpayers who do not itemize.

Cost of the proposal to the U.S. Treasury

The CARE Act of 2002 which includes other beneficial provisions to the nonprofit sector, such as the IRA Rollover, the lowering by 1% of the excise tax on foundations and full funding for Title XX, the Social Services Block Grant, has not been scored by the Joint Committee on Taxation yet. Its sponsors expect that the total cost of the bill will be between $11 and $13 billion. The charitable tax incentives, including the non-itemizer deduction, are expected to account for between $8 and $10 billion. The CARE Act also includes a provision to expand the Individual Development Accounts program at a cost of $1.7 billion, the increase in Title XX of nearly $1.1 billion, and an appropriation for the Compassion Capital Fund to provide management assistance to community-based nonprofit organizations of $150 million. Alliance agencies could well qualify to provide this assistance to help other organizations.

Do these charitable giving tax incentives justify reductions in government funding for other services provided by nonprofit organizations?

The sponsors of the CARE bill have taken a strong bipartisan approach to balancing the need for both public and private support of charitable programs that address the unmet needs of our communities. The bill has been crafted with the blessing of the White House and enjoys presidential support. One of the great appeals of this bill for many nonprofit organizations such as ours is that it includes a significant increase in funding for the Social Services Block Grant, a cause we have been espousing for a long time, while also providing the needed incentives to individual taxpayers to continue or increase their support for the services all charitable nonprofits provide.

CARE ACT of 2002 Sponsors

Sen. Evan Bayh (D-IN)
Sen. Sam Brownback (R-KS)
Sen. Jean Carnahan (D-MO)
Sen. Hillary Clinton (D-NY)
Sen. Thad Cochran (R-MS)
Sen. Zell Miller (D-GA)
Sen. Bill Nelson (D-FL)
Sen. Richard Lugar (R-IN)
Sen. Orrin Hatch (R-UT)
Sen. Kay Bailey Hutchison (R-TX.)

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