Non-Itemizer Charitable Deduction Takes Center Stage at Capitol Hill Hearing

Last week legislators on a top panel in the U.S. Senate explored trending needs and opportunities for charities. The Senate Finance Committee, which has oversight over tax-exempt matters, held a hearing titled, “Examining Charitable Giving and Trends in the Nonprofit Sector.” Significantly, the ECFA-supported universal charitable deduction was a key point of interest.

Chairman Ron Wyden (D-Ore.) began the session by declaring, “The charitable deduction is a lifeline, not a loophole.” He then lauded the 2020 CARES Act’s $300 charitable deduction for non-itemizers, a provision that expired in December 2021. Wyden encouraged a bipartisan push to revive and expand it.

Sen. James Lankford (R-Okla.), who was standing in as the committee’s leading Republican during the hearing, also centered his comments on the universal charitable deduction. He said he was “very passionate” about that policy and his work with senators on both sides of the aisle to enhance it through the Universal Giving Pandemic Response and Recovery Act. That bill would expand the universal charitable deduction to an amount up to one-third of the standard deduction (roughly $4,000 for individuals and $8,000 for married joint filers).

Should anyone doubt the power of the tax code to influence charitable giving, Lankford noted a demonstrable correlation between the $300 non-itemizer deduction and the major increase in precisely $300 donations on December 31, 2020.

“It is not because of the Christmas spirit; it’s because of the tax deduction,” he said.

Wyden echoed this sentiment. While Americans may still give out of the goodness of their hearts, he suggested changes in the tax code affect the number and size of donations.

The chairman also implied that the universal charitable deduction helps to democratize giving incentives — an idea reinforced by several of the witnesses testifying at the hearing. In fact, Daniel Cardinali, president of Independent Sector, said a revived non-itemizer deduction was important for the health of society.

“A charitable sector that is funded only by the wealthy will look very different and will serve America very differently, with ramifications for governance, trust, and the types of organizations and activities that receive funding,” he said.

In addition, Cardinali pointed to data showing that incentivizing a broader donor base boosts not only financial resources for nonprofits but also the number of volunteers willing to invest their time for charitable causes in communities.

The hearing covered other points of importance to charitable groups, including efforts to build on the expired child tax credit expansion and the employee retention credit. Some senators — particularly Sen. Chuck Grassley (R-Iowa) and Sheldon Whitehouse (D-R.I.) — focused their time on their desire to restructure donor advised funds, while other topics included supporting community foundations and preventing conservation easement abuse.

Sen. Todd Young (R-Ind.) zeroed in on the importance of charities adapting to new technologies, a subject Dr. Una Osili of the Indiana University Lilly Family School of Philanthropy explored in her testimony. She highlighted significant increases in online giving, as well as the use of technology to increase transparency and connection opportunities with donors and volunteers.

Osili also sounded an alarm about a pre-pandemic trend toward decreased giving among low and middle-class Americans. She conjectured that declines in interpersonal trust and empathy could be factors. And in response to a question from Sen. Tom Carper (D-Del.), she pointed to the effects of religious participation (or presumably the decline thereof) on giving not just to religious missions, but also more broadly among charitable causes.

In a letter signed by ECFA and other faith-based organizations in advance of last week’s hearing, groups noted the presence of the faith community on societal frontlines “serving the escalating physical, emotional/relational, and spiritual needs of the most vulnerable members of our communities.”

"Unfortunately, the charities caring for our nation’s most vulnerable often are the most vulnerable themselves to economic downturns and crises,” the letter stated.

ECFA and fellow signatories emphasized the importance of extending and expanding the universal charitable deduction to support such ministries.

“Granting lower- and middle-income taxpayers the same sort of generous tax incentive granted to higher-income taxpayers will help increase and democratize giving to all of America’s diverse ministries and other charities,” we said.

ECFA will continue to monitor these matters closely. We are committed to urging legislators to support charitable giving incentives, particularly the successful universal charitable deduction.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.