Charitable Tax Deduction in Jeopardy

Grand Rapids Community Foundation and Heart of West Michigan United Way
Joint Statement Regarding Charitable Tax Deduction Reduction

For the fourth time in three years, President Obama is proposing a change on the charitable tax deduction for households with income greater than $200,000 or net worth greater than $1 million. This is part of the President’s formal recommendations to the supercommittee charged with developing a deficit reduction plan by November 23rd. A Center on Philanthropy study noted that in 2005 households above $200,000 were “responsible for approximately two-thirds of all household giving in our country.”

Grand Rapids Community Foundation and Heart of West Michigan United Way are opposed to any potential erosion of the charitable tax deduction at any income level. We realize that there is a serious deficit problem at both the state and federal governmental levels.  There are many ideas being proposed to address the deficit—but reducing the charitable income tax deduction isn’t an idea to pursue.

According to the Council on Foundations: “The administration has proposed disallowing any charitable deduction to the extent such a deduction reduces the income tax liability of the donor by more than 28% of the donation. Individuals subject to the highest tax rates - currently 33 percent and 35 percent, and scheduled to increase to 36 percent and 39.6 percent in 2011 - would see the tax benefit of their charitable deductions reduced significantly.”

Brian Gallagher, president of the United Way of America, provided testimony to the Senate Finance Committee recently and noted that: “Recent studies indicate that a cap on the deduction could result in loss of charitable giving of between $2.9 billion and $5.6 billion each year.  A variety of other proposals to limit the deduction have been circulated this year.  Each proposal has two common elements: 1) they limit the value of the deduction for some group of donors, and 2) they will result in reduced giving to charity to the detriment of individuals and families who rely on our help.”  Grand Rapids Community Foundation and Heart of West Michigan United Way concur with this assessment and believe that this proposal represents the proverbial slippery slope—the start of undoing the charitable tax deduction. We are wary that if the charitable tax deduction is reduced once, it will continue to be whittled away over time. Even if a small portion of donors take advantage of itemizing their charitable donations, we don’t need to take away incentives; we need to encourage people to give generously as we see tax dollars providing less for people in need.

This proposal could potentially have a harmful effect on our ability to serve those who are the most vulnerable at a time when many are still experiencing the negative impact of the downturn of the economy. The boards of Grand Rapids Community Foundation and Heart of West Michigan United Way are opposed to this measure and strongly encourage the community to rise up to the challenge to inform our members of Congress to not let this proposal become a reality.   

The positive impact of the philanthropic sector is certainly seen firsthand in the greater Grand Rapids community every day.  The area has grown through the generosity of many people, foundations and other funding organizations.  Capital projects are the most visible signs of philanthropy and they illuminate Grand Rapids’ skyline. Critical and often behind-the-scenes programs make a significant difference in the lives of children, families and adults in our community and they exist because of the financial gifts from donors. 

There are a variety of reasons of why people give so generously in our community to nonprofits and faith-based organizations as well as churches, synagogues and other houses of worship.  It is difficult to pinpoint one place where the desire to give comes from. For some it is family tradition, for others it is a part of their faith; it can come from a desire to leave a lasting legacy, or simply wanting to make the community a better place today.  The incentive to give is aided by the federal charitable tax deduction which has existed in the tax code for 100 years. We believe that the proposed cap on the charitable tax deduction would impose hardships on people served by nonprofits in our community.

It isn’t worth it to remove the tax deduction incentive at the expense of people in need and the viability of nonprofits in our community.


Diana Sieger, President, Grand Rapids Community Foundation

Carol Karr, Grand Rapids Community Foundation, Board of Trustees Chair

Maureen Noe, President/CEO Heart of West Michigan United Way

Louis H. Moran II, Heart of West Michigan United Way Board Chair