News you can use: tax reform proposals that may influence charitable giving
An update on major tax plans and how these can affect charitable planning
Tax reform is in the headlines again, and several alumni have contacted our office to ask how charitable giving may be affected, so we thought we’d provide this brief update.
At this time, there are three major tax reform proposals getting a lot of attention, outlined below.
1. Unified Framework for Fixing Our Broken Tax Code (often called “the Framework”)
- Released September 2017
- Joint effort of White House and Republican Leaders in House and Senate
- Released June 2016
- House Tax Reform Task Force, chaired by Ways & Means Chair Kevin Brady
- Released February 2014
- Draft legislation proposed by Ways & Means Chair David Camp
It’s highly unlikely that any of these proposals will become law in their entirety. Instead, future legislation is likely to be a combination of ideas in each of them, along with other concepts that have been discussed in Washington, D.C. and elsewhere. But there are some common themes amongst these proposals, and some of the proposed changes could have an impact on how the tax code incentivizes charitable giving.
The proposals would lower the top federal income tax rate from 39.6% to 35% (though the Framework leaves open the possibility of a higher bracket). If tax rates are lowered, then a charitable deduction becomes less valuable because donors are offsetting taxes at a lower rate.
The proposals would increase the standard deduction from current levels. For example, the standard deduction for a married couple filing jointly would increase from $12,700 to $22,000 or $24,000. They also suggest eliminating many commonly-used deductions, including the deduction for state and local income taxes. If the standard deduction is increased, and other deductions eliminated, then fewer donors will itemize and, thus, not have a chance to claim a charitable deduction.
The proposals would eliminate the federal estate tax. If that comes to pass, there will be less tax-based motivation for high net worth individuals to incorporate charitable giving into their inter-generational financial plans.
While each of these proposed changes would reduce tax incentives for giving, proponents argue that their plans would increase philanthropy overall by unleashing greater economic output of the nation generally and reducing taxes, thus resulting in Americans having more disposable income to give away.
It’s important to note that, at this point, we don’t know what changes will be made to the country’s tax laws. And when it comes to tax planning, the devil is in the details.
Our donors support Duke University and Duke Health because they want to make a difference in the world and become more closely engaged with one of the most high-impact and cutting-edge institutions of education, research and patient care in the world. That will not change. Still, existing tax incentives for charitable giving are an important part of their decision-making process and make charitable giving easier, so we’re closely monitoring developments in DC.