SALT LAKE CITY — Utah nonprofit organizations that have seen a significant drop in donations because of the COVID-19 pandemic are lining up behind a proposal to expand a new charitable giving tax deduction.
Sen. Mike Lee, R-Utah, is working on bipartisan legislation to increase the $300 limit on the charitable giving deduction Congress approved as part of the coronavirus relief package to one-third of the standard deduction. The plan would boost the deduction to $4,000 for an individual and $8,000 for married couples for 2019 and 2020 tax returns.
“I need all the help I can get with this,” Lee told Utah nonprofits in a videconference meeting Monday. “Help me build support in Congress.”
Sen. James Lankford, R-Okla., intends to introduce the bill this week, said Lee, a co-sponsor of the legislation.
Lankford told the Joint Economic Committee, which Lee heads, on Tuesday that Congress needs to encourage more giving to nonprofits because they are more efficient at getting help to local communities than government is.
“Government is efficient at writing a check. Government is efficient at developing a program to be able to facilitate activities,” Lankford said. “Government cannot meet the human needs that are there like a family can and like a local nonprofit can.”
Contributions to charities have dropped dramatically during the coronavirus pandemic.
“It’s been devastating,” said Kate Rublacava, CEO of the Utah Nonprofits Association.
More than half of the state’s nonprofits canceled events and fundraisers, resulting in $11 million in lost revenue, she said. Organizations spent another $4 million to restructure events and convert to working remotely because of the virus.
“We need to jump-start that back again. Passing this right now would be helpful,” Lee said. “We especially need to do this right now because of all the things with we’re struggling with.”
Rubalcava said the nonprofit sector has been talking to Congress about expanding the charitable giving tax deduction for years.
“It’s fortuitous in an awful way that a pandemic has really sparked the need to center charitable giving to nonprofits,” she said.
Government cannot meet the human needs that are there like a family can and like a local nonprofit can.
–Sen. James Lankford, R-Okla.
Lee’s proposal also comes in response to the 2017 Republican tax bill, which discourages charitable giving relative to previous tax law.
The legislation increased the standard deduction to $12,000 for singles and $24,000 for couples, capped the state and local tax deduction at $10,000, and eliminated other itemized deductions — steps that resulted in a substantial reduction in the number of taxpayers who itemize, and thus the number who take a deduction for charitable contributions, according to the Tax Policy Center.
The center estimates that the law cut the number of those itemizing their charitable contributions by more than half, from 21% to about 9% of households.
Only taxpayers who itemize, generally those at upper income levels, can currently claim the charitable deduction, Lee said.
“Lower income families who don’t itemize now receive no incremental additional tax benefit specifically because of their charitable contribution, that is to say they don’t get anything beyond the standard deduction,” he said.
Congress, Lee said, could and should address the disparity.
“It’s an injustice to working families and the local charities who rely on them, especially those charities who do some of the most important work,” he said.
Bill Crim, president and CEO of the United Way of Salt Lake, told the committee that the reasons for giving are highly personal and often altruistic.
“But tax policy does influence people’s behavior,” he said. “Good tax policy might be the nudge that someone needs to make their first donation or it might prompt a longtime donor to give a little more.”
United Way of Salt Lake relies on small donations from large numbers of people to raise about $15 million a year, Crim said. The average donation is $229.
Crim said ideal tax policy would permanently relieve all taxes on income people donate to charity, but added he knows that’s not viable right now.
“A temporary nonitemizer deduction could be instrumental in helping charities help our communities and those impacted by the crises facing our country,” he said.
During the meeting with nonprofits, Lee was asked if there would be additional incentives for people who give to their faiths, such as members of The Church of Jesus Christ of Latter-day Saints who pay tithing, to contribute to charities outside their churches.
Those who pay tithing and make other contributions to their churches already exceed one-third of standard deduction, he said.
“They unfortunately would not under this legislation get a larger deduction for anything in addition to that that they give to charity,” Lee said. “However, they could, and we expect that many will, use the money that they save on their tax bill to give more to other nonprofits.”
Nonprofit organizations in the meeting also asked Lee if President Donald Trump would support expanding the charitable giving deduction.
Lee said factors regarding the bill could “stall it out” or make it tougher to pass, but he would be pleased if it makes it to the president’s desk.
“You’ve got my word,” Lee said. I’m not going to let Trump veto this.”