Expanding the charitable deduction only makes sense

The cynical among us might wonder about legislation introduced last week, the Universal Giving Pandemic Response Act, which is endorsed by a bipartisan group of U.S. senators. After all, a crisis such as the pandemic can be the time when causes find convenient new rationales. But the proposal to increase the so-called “above-the line” income tax deduction for charitable giving, currently set at a meager $300 for those who don’t itemize their tax returns, is a bona fide response that will help organizations which have, under duress, expanded their purposes to include helping those whose lives and livelihoods have been affected by COVID-19.

Even if this bill doesn’t make it to the Senate floor, lawmakers should seriously consider making it a part of a potential phase four coronavirus relief package. After all, charitable and nonprofit organizations for years have assisted and lifted up our most vulnerable members of society, and amid the current crisis, more Americans than ever are showing up in need at their doors.  

The proposal — sponsored by Sens. James Lankford (R-Okla.), Chris Coons (D-Del.), Mike Lee (R-Utah), Jeanne Shaheen (D-N.H.), Tim Scott (R-S.C.) and Amy Klobuchar (D-Minn.) — would increase the charitable deduction to up to $4,000 for individual filers and $8,000 for those filing jointly. Keep in mind, one must actually donate that much to a charity to qualify. In other words, this is no tax loophole. The background, however, involves not only the COVID-19 pandemic but the most recent tax reform bill that went into effect in 2018. That law, by significantly increasing the standard deduction for all taxpayers, greatly reduced the tax incentive to give to charity for all but those in the top income groups. Until the CARES Act was passed, if you did not itemize your taxes, you could not claim a charitable deduction. (CARES made possible the $300 above-the-line deduction.)

Indeed, the Tax Foundation has estimated that only 13.7 percent of taxpayers will have itemized their tax returns for 2019 — a decline of more than 17 percent compared to those who itemized before tax reform. The drop is estimated to be especially large for those in the middle-income range.

Those low- and middle-income households concerned about a drop in donations for food banks  and other forms of crisis assistance — where I live, the Lion’s Club is organizing aid to shuttered local businesses, for example — but do not itemize their taxes, would gain a tax incentive similar to that of the wealthy if this new Senate bill becomes law.

And make no mistake: Hundreds of groups you’ve never heard of, or would not expect to do so, are filling the gaps in coronavirus-related assistance, which the government either did not anticipate or does not have sufficient funding to address. Through my own work with the Manhattan Institute’s civil society programs, I’ve been fortunate to get to know a great many. There is Better Together, a Naples, Fla., group arranging temporary foster care for parents who’ve lost their jobs and need someone to shelter and care for their children, while they search for a new one. There is Fugees Academy, which runs private and charter schools in Ohio and Georgia for the children of refugees — and is both providing distance learning and making sure students’ families have enough to eat. And there’s the English Language Learners In-Home Program in Carson City, Nev., which normally brings volunteer tutors to the homes of immigrants to teach them English and prepare them for the citizenship test. Now, it is offering online classes and raising funds for those who do not have home internet or a device needed to cross the digital divide and continue their learning.

The point here is not only that these and so many others are doing great work in America’s civil society, our mutual aid tradition that brings volunteers and philanthropy together to solve some of our nation’s most pressing problems, but that we cannot anticipate all the social ills that may arise — thus, we cannot look to government as our sole source of social services. 

Charitable giving is a sort of national venture fund for the needs that we don’t anticipate, or the things that  the government just doesn’t do well. In fact, the problem with the proposed above-the-line charitable deduction is that it would apply only to tax years 2019 and 2020. It should become a permanent part of our tax law, and we should not confine this incentive for charitable giving to the rich. 

Howard Husock is a senior fellow and the director of the Tocqueville Project at the Manhattan Institute. He is the author of “Who Killed Civil Society?” (Encounter, 2019).