A week before Christmas, President Barack Obama signed H.R. 5771, the “Tax Increase Prevention Act of 2014,” into law. Sponsored by retiring Republican Ways and Means Chairman Dave Camp (R-MI), the bill passed through Congress with bipartisan support (not to mention equally bipartisan opposition!). The law has given those in charity great cause for celebration, considering that it offers a one-year renewal for a number of charitable tax breaks that had expired on December 31, 2013. Nevertheless, despite Congress’s best effort to renew the tax breaks, many have alleged that the bill does not go far enough.
On December 16, the U.S. Senate passed H.R. 5771 and three days later it was signed into law by the president. Although the bill covers a lot of ground – from deductions for school teachers buying supplies to deductions for mortgage insurance premiums – The Chronicle of Philanthropy and Forbes’ Ashlea Ebeling have signaled the law’s importance to philanthropy with regard to at least two specific provisions.
First, the bill extends the IRA charitable rollover tax break. Although it is only a one-year extension, the law allows those who are older than 70 1/2 to give more to their favorite charity out of their Individual Retirement Account. Section 108 of the law explains the “extension of tax-free distributions from individual retirement plans for charitable purposes” by simply updating the date from last New Year’s Eve to this year. According to Ebeling’s write-up on a similar bill:
With an IRA charitable rollover, you can direct the custodian of your pretax Individual Retirement Account to transfer up to $100,000 per year to a public charity without having to count that distribution in your income. In return, you’ll forego the charitable income tax deduction.
Second, the bill provides two provisions regarding Business Tax Expenders. Section 126 outlines the charitable deductions for contributions of food inventory. In other words, the bill creates “enhanced incentives encouraging farmers and others to donate food inventory to food banks.”
Many in the world of charity thought the extensions were great, but almost no one thinks that they went far enough. For example (as quoted in Forbes), William Daroff, the director of the Washington Office for Jewish Federations, remarked on the IRA rollover: “Although we are grateful that the Senate has renewed the IRA Charitable Rollover for 2014, the time has come to make this important giving incentive a permanent part of the tax code.” There is no doubt that charities overwhelmingly think that Congress didn’t go far enough in their eleventh-hour measure. Although Ebeling writes that the permanent tax breaks are “to be decided in the next Congress,” there is nothing preventing the 114th from once again passing the buck and pushing for another temporary fix.
Others have pointed out that Congress acted too late. As Reuters notes: “In some cases, you lost out: it is too late to take advantage of [the tax breaks] and you are going to lose them at the end of the year.” As Tara Thompson Popernik wrote in the AllianceBernstein blog, “Time is running out.”
Those who oppose the charitable deductions have a less-nuanced position. Essentially, the argument can come from two perspectives. First, from the market commerce perspective, the extension of the tax breaks (and the tax break, in general) gives some recipients of the charitable donations the upper hand over others. For instance, in the IRA charitable rollover, gifts cannot be made to donor-advised funds, grant-making foundations, or charitable gift annuities as their contribution (source). By benefiting one type of giving over another, these other types of charities are at an inherent disadvantage. Second, from the principled perspective, these charitable deductions continue the trend of government interference into the philanthropic sector, thereby making charitable organizations dependent on the unpredictable whims of Congress. As countless charities appeal to their donors “There’s Still Time!” and “[It’s] Not Too Late,” it becomes apparent that Congress’s late and unpredictable behavior has serious consequences for philanthropy across the country, not to mention taxpayers.
Regardless of one’s position, most can agree that Congress merely perpetuated the status quo and failed to forward a lasting solution.