Action is Needed Against Oregon House Bill (HB) 2001 & Senate Bill (SB) 305 that Would Eliminate Itemized Deductions for Charitable Contributions in Oregon

The Nonprofit Association of Oregon (NAO) is very concerned by Oregon House Bill (HB) 2001 and Senate Bill (SB) 305. Both of these bills would “sunset” itemized deductions for charitable contributions. HB 2001 would sunset these deductions by 2018. SB 305 would eliminate these deductions at the end of this year. A sunset is understood to be a forced review during which the legislature would need to take action to renew a specific deduction. This would give the legislature a chance to evaluate each deduction individually for effectiveness. NAO believes that the itemized deduction for charitable contributions should not be included in a bill to sunset other itemized deductions.

While HB 2001 gives some breathing space for parties to advocate for the reauthorization of individual itemized deductions, there are no guarantees as to the outcome. Once a sunset is in place, without further legislative action, the charitable deduction, in its entirety, would expire. SB 305 creates even greater concerns as the charitable deduction would expire at the end of 2013 with no realistic opportunity to re-establish the deduction in the short term and little time for Oregon‘s charities to prepare for the inevitable downturn in contributions. Both of these bills have already had hearings in their respective houses, so action by nonprofits is needed.

The charitable giving incentive should not be considered a “loophole.”

There appears to be a plan to seek revenue for state budgets from caps or cuts to specific itemized deductions, including the charitable deduction. Seeking revenue this way has been tried before and had serious repercussions in other states. If HB 2001 and SB 305 were enacted and charitable deductions were allowed to “sunset,” Oregon would join Michigan and Montana as the only other states to have removed tax credits or incentives for charities. Hawaii Governor Neil Abercrombie recently supported the passage of Hawaii HB 430, a measure that exempts charitable deductions from the temporary limit on the amount of itemized deductions imposed under Act 97. In his testimony on HB 430, Governor Abercrombie stated, “…after having taken a close look at the impact this particular section of the law is having on charitable donations made to Hawaii’s non-profit organizations, we support carving out this portion of the law. We recognize that support for nonprofit and charitable organizations is an important policy goal and priority as these groups perform critical services for and within our community.”

Charitable nonprofits have been emphasizing for years that the charitable giving incentive is not a loophole but an important policy decision that is vital to communities. Our own Senator Ron Wyden explained at a Budget Committee hearing on March 5 that the charitable deduction should not be considered a “loophole” in the tax code, but a “lifeline” that encourages individuals “to give more than they would otherwise give.”

Curtailing charitable deductions hurts Oregon communities.

All charitable nonprofits in Oregon benefit from public support, and most are dependent on private giving to maintain or enhance the services they provide to their communities. The charitable incentive is the only deduction for which the taxpayer gets a partial tax benefit for making a donation and the community gets the entire benefit of every dollar donated. As economist and Harvard Professor Martin Feldstein explained in a March 12 Washington Post article, “The full deduction for charitable contributions should be retained, because the money that taxpayers give to charity benefits those organizations rather than the individual taxpayer.” Curtailing charitable deductions will reduce available funding to nonprofits and hurt Oregon communities.

In study after study it has been proven that limiting or disallowing a deduction for charitable giving will have a permanent negative effect on giving to charities. In May 2011, the Congressional Budget Office studied the issue of modifications to tax law regarding charitable giving in the paper Options for Changing the Tax Treatment of Charitable Giving. That paper found that “although those various motivations may prompt different kinds of responses to incentives for charitable giving, studies have generally found that the amount of giving is responsive to changes in the after-tax price of giving.” Additionally, a paper published in the National Tax Journal in June 2011 titled How Does Charitable Giving Respond to Incentives and Income? New Estimates from Panel Data concludes that “peoples’ decisions about how much to donate to charity are influenced significantly by tax incentives.” Simply put, curtailing charitable deductions reduces available funding to nonprofits which reduces important services to our communities.

Giving to the community is a value in Oregon.

Despite Oregon‘s higher than national average unemployment rate and lower than national average incomes, Oregonians give to their communities through nonprofits. According to The Oregon Community Foundation’s Giving in Oregon 2012 report, Oregonians give more generously than national averages across every economic level, and the wealthiest Oregonians (those making over $200,000/year) gave 3.29% of their incomes on average. By sunsetting or eliminating the incentive to give charitably, HB 2001 and SB 305 would divert money away from the work of churches, synagogues, food banks, domestic violence shelters, and so many more charitable nonprofits providing needed services not offered by state and local government.

The Oregon House and Senate Revenue Committees will undoubtedly be considering cuts in state spending and reforms to tax laws. Those changes could undermine the ability of nonprofits to maintain–and expand–much needed programs and services, especially with the increased demands resulting from the still anemic economy. Additionally, policy choices being made at the federal level could significantly compound the damage to nonprofits if HB 2001 and SB 305 were enacted in Oregon. Charitable nonprofits across Oregon must be able to count on the current Oregon tax incentives for charitable giving if the expectation of policymakers is that nonprofit organizations will be there to fill the gaps.

Action is needed.

NAO asks that nonprofits contact your Oregon representatives and take the following steps:

• Ask for further clarification on how these bills will affect the charitable deductions
• Let your representatives know how a reduction or disallowance of the itemization for charitable contributions might affect your nonprofit’s work
• Express your strong support for the charitable deduction being exempted from sunset legislation

Please let NAO know of your action by either sending an update or copying Jim White – jwhite@nonprofitoregon.org – on your communications with your representatives.