Sample Proposal

Individual and corporate taxpayers can deduct the value of their charitable contributions to qualifying charitable organizations up to certain percentages of adjusted gross income (AGI).  Individual taxpayers must itemize their deductions to be able to claim the charitable deduction. Charitable contributions eligible for the deduction may be made in cash or through in-kind property at fair market value.

The charitable deduction is intended to promote charitable giving, but it also subsidizes giving that might have occurred in the absence of the deduction. Furthermore, the deduction is only available to itemizing taxpayers and thus generally benefits higher-income taxpayers. These taxpayers enjoy a particularly large tax benefit in donating appreciated property, as donation allows them to avoid tax on appreciation while simultaneously claiming a deduction for the property’s full fair market value. By limiting the deduction, this proposal would increase the progressivity of the tax system while raising revenue.

The proposal would limit the amount of deductible charitable contributions to those that exceed three percent of AGI.

The above is derivative of an option contained in CBO’s Options for Reducing the Deficit, 2023 to 2032—Volume II: Smaller Reductions. The proposal could be adjusted by adjusting the AGI percentage threshold for deductible contributions, including a higher threshold for contributions of property.

Moreover, the proposal could be adjusted to provide that a tax credit of 25% be allowed with respect to the charitable contribution, rather than a deduction.

Finally, the proposal could be adjusted to provide that contributions of property would be valued at tax basis, rather fair market value, or that the charitable contributions of appreciated property be limited to a lower percentage of adjusted gross income.

The proposal would raise revenue from high-income taxpayers by reducing the size of the charitable deduction that may be claimed by current itemizers. It continues to promote charitable giving, requiring a threshold amount of giving in order to claim a deduction. It also continues to incentivize non-cash contributions, which are important to a number of non-profit entities, including museums.

By reducing the value of the charitable deduction, the proposal may reduce overall charitable contributions, adversely affecting the charitable sector. The proposal promotes vertical equity in limiting the deduction available to high-income itemizers, but it continues to offer no benefit to lower-income non-itemizers. Providing a credit in lieu of a deduction would benefit itemizers and non-itemizers alike. The proposal further continues to allow taxpayers to avoid paying taxes on gains in appreciated property by donating such property. Valuing contributions for purposes of the deduction at tax basis, or further limiting the charitable contributions of appreciated property, would alleviate this problem.

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