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As part of my official research assistant duties, I recently participated in Foundations on the Hill in Washington, D.C. with a group from Minnesota that met with staff and members of the House and Senate to ask for their support on issues affecting philanthropy. I teamed up with several Minnesota Council on Foundations' members to visit with the staff of Representatives Bachmann (R-06), Ellison (D-05), Peterson (D-07) and Walz (D-01). We also had a chance to meet Congressmen Ellison and Walz.
It was an exciting time to be in Washington and advocate on behalf of the philanthropic community. There was strong support for philanthropy and an interest in how grantmakers are responding to the economic downturn. After the meetings, it made me realize how lucky Minnesotans are to be represented by such smart, hard-working people.
The primary message to our Congressional delegation was to support new and protect current vehicles and tools that strengthen and expand philanthropy and charitable giving. Specifically, our meetings focused on four main issues:
Charitable Deduction Rates: President Obama’s 2010 budget outline calls for tax changes that would affect individuals and families in the two highest tax brackets. The proposals include reducing the value of itemized deductions that families earning more than $250,000 or individuals earning more than $200,000 can take as a result of their charitable donations. The change is intended to help pay for health care reform. We advocated for maintaining the current charitable deduction rates.
Clearly, a reduction in the charitable deduction rate will reduce the incentive for donors to give, thus reducing the amount of money available to support nonprofits. At a time when charities and nonprofits are faced with increasing demands from their communities, it is important that tax policies support and encourage charitable giving. However, as Ann Lindstrom has already mentioned, it is unclear exactly how these changes will affect giving. Also, health care reform could be better in the long run for everyone.
To learn more about this issue, check out this information from The Center on Philanthropy at Indiana University, the Center on Budget and Policy Priorities and the Tax Policy Center (Urban Institute and Brookings Institution).
Estate Tax Reform: The estate tax is an important incentive to charitable giving during a donor’s lifetime, as many donors use charitable gifts to reduce their estates and the taxes they would otherwise pay on those estates. We advocated for an estate tax with reasonable thresholds and rates and opposed full repeal of the estate tax.
Since 2001, the value of assets that can be excluded from the estate tax has been increasing – from $600,000 in 2001 to $3.5M in 2009 (effectively $7M per couple) – and the tax rate has been decreasing – from 60% in 2001 to 45% in 2009. President Obama’s tax plan calls for making the 2009 rates and exemption amounts permanent ($3.5M per spouse and a tax rate of 45%). Unless Congress acts this year, the estate tax will be eliminated in 2010, but will reappear in 2011 at the 2001 rates and exemption amounts.
UPDATE: Senate Finance Committee Chairman Max Baucus (D-MT) introduced legislation, the Taxpayer Certainty and Relief Act of 2009 (S.722) on March 26. This bill would make existing tax breaks permanent for working families and individuals including protecting middle-income taxpayers from the alternative minimum tax (AMT) and the marriage penalty; lock in 2009 estate tax rates; and make permanent the 10, 25, and 28 percent individual income tax rates set in major tax cut legislation. The measures were originally passed as part of tax legislation in 2001 and 2003 but are set to expire in 2010.
IRA Charitable Rollover Expansion: Through 2009, taxpayers aged 70 ½ or older can make tax-free distributions of up to $100K from their IRAs to charitable organizations. However, gifts to donor advised funds do not qualify for the incentive. We advocated for legislation that expands and permanently extends the IRA Charitable Rollover to include gifts to donor advised funds, supporting organizations, and private foundations and eliminates the $100,000 cap.
UPDATE: Representatives Earl Pomeroy (D-ND) and Wally Herger (R-CA) introduced the Public Good IRA Rollover Act of 2009 (H.R. 1250) in the House of Representatives in early March. If enacted, H.R. 1250 would make the charitable rollover incentive permanent and allow taxpayers who make IRA distributions to donor-advised funds, supporting organizations, and private foundations to qualify for the incentive. The bill would also lift the $100,000 cap on distributions and allow planned gifts beginning at age 59-and-a-half.
Excise Tax Reform: Private foundations that are exempt from federal income tax are generally subject to a 2% excise tax on their net investment income. However, the tax is reduced to 1% in any year in which the foundation’s percentage of distributions for charitable purposes exceeds the average percentage of its distributions over the five preceding taxable years.
President Obama’s proposed budget calls for replacing the 2-tier structure of the excise tax with a single rate of 1%. The proposal would be effective for taxable years beginning after December 31, 2008. Recognizing the current national economic crisis and fiscal challenges Congress is facing, we advocated for a revenue-neutral excise tax.
UPDATE: On March 24, Senator Charles Schumer (D-NY) introduced a private foundation excise tax bill (S.676). This proposal would amend the Internal Revenue Code of 1986 to modify and simplify the excise tax on the investment income that private foundations pay. S.676 would remove the current two-tiered excise tax imposed on private foundations and replace it with one flat rate. The proposed rate, which will be determined by the Joint Committee on Taxation, would be set between 1 and 2 percent at a revenue-neutral level.