The tax code currently encourages charitable donations by allowing taxpayers to deduct those contributions from their taxable income. The American people are extremely generous in giving to their local communities, and this deduction contributes to this generosity.
From the moment the first settlers arrived in America, churches and civic institutions have been the bedrock of our society. These private organizations, not government, are the foundation of our communities, and their lifeblood are the charitable contributions made by hardworking citizens and families.
Elder Dallin H. Oaks, a member of the Quorum of the Twelve of The Church of Jesus Christ of Latter-day Saints, recently confirmed this central role for charities and churches at a hearing on charitable giving held by the U.S. Senate's Finance Committee. Unfortunately, the current tax deduction for charitable contributions is under attack from many quarters.
As the top Republican on the Finance Committee, I invited Elder Oaks to discuss the need for protecting this deduction and ensuring that individuals in Utah and across the country will continue to be gracious in donating to those in need.
The tax code currently encourages charitable donations by allowing taxpayers to deduct those contributions from their taxable income. The American people are extremely generous in giving to their local communities, and this deduction contributes to this generosity. Unfortunately, President Barack Obama has repeatedly proposed that individuals earning more than $200,000 a year and families making more than $250,000 a year lose up to 20 percent of their charitable deduction.
Adopting this proposal would be a real mistake.
In his testimony before the Finance Committee, Elder Oaks confirmed that the private organizations that receive charitable donations are "responsible for tens of millions of jobs and innumerable services that benefit our citizens at every level." However, if the proposal to reduce the tax deduction for charitable donations from 35 percent to 28 percent were enacted, it would cost charities as much as $5.6 billion per year, according to the Urban Institute's Center on Nonprofits and Philanthropy.
The nonpartisan Congressional Budget Office found that other proposals to limit the charitable deduction could result in as much as a $10 billion drop in donations annually. For this reason, I am strongly opposed to the president's proposal, and I am fighting to ensure that it does not become law.
A quick look at the hurricane relief provided to the Gulf Coast in 2005 shows what a difference charitable donations can make. After Hurricane Katrina, more than $3.5 billion in cash and in-kind donations — food, water, clothing, medical supplies and other services — were donated. Roughly $2.1 billion in private donations for hurricane relief went to the American Red Cross, which sent more than 200,000 volunteers to the region to build shelters, provide meals and emergency assistance.
And they were not alone.
Catholic Charities donated $154 million, and hundreds of other organizations rushed in with volunteers, money and other resources to help people and businesses in the region get back on their feet. One of them was The Church of Jesus Christ of Latter-day Saints.
Elder Oaks noted in his testimony that the LDS Church donated more than $13 million in cash and 3,000 tons of emergency supplies. Thousands of Latter-day Saint volunteers gave more than 42,000 days of service.
The effectiveness of these private charities in providing relief to those in need stands in stark contrast to the mediocre response to the same crisis by government agencies. Churches and other charities have proven track records when it comes to caring for those in need. Does it really make sense to limit the current tax deduction to these organizations and give the money instead to the federal government, which is fraught with waste and mismanagement?
I am confident that the money "saved" by limiting the charitable deduction would neither reduce the deficit nor help the truly needy. Instead, it will go to fund more government bloat and government jobs.
Government was never intended to be the solution for every problem in this country. Yet today, government tries to do too much and succeeds at very little — at exorbitant expense to taxpayers.
The tax deduction does not exist to reward some donors more than others. It exists for the charity. The charitable deduction encourages members of society to direct enough resources to charities so they can carry forward the good works our society so desperately needs them to perform.
Government does not need another taxpayer handout. But Americans in need do need a hand up. The president and Congress should step aside and let our nation's charities carry on with the relief they are uniquely qualified to deliver.
We curtail the charitable tax deduction at our peril.
Sen. Orrin Hatch is the ranking member of the Senate Finance Committee.