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77–208—PDF 2011

S. HRG. 112–646 

TAX REFORM OPTIONS: 

INCENTIVES FOR CHARITABLE GIVING 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

OCTOBER 18, 2011 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

RUSSELL SULLIVAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 2 

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 20 

WITNESSES 

Sammartino, Frank, Assistant Director for Tax Analysis, Congressional Budget Office, Washington, DC ................................................................................... 7 

Oaks, Elder Dallin H., The Quorum of the Twelve Apostles, The Church 

of Jesus Christ of Latter-day Saints, Salt Lake City, UT ................................ 9 

Steuerle, Dr. Eugene, Richard B. Fisher chair and institute fellow, The Urban 

Institute, Washington, DC .................................................................................. 10 

Gallagher, Brian A., president and CEO, United Way Worldwide, Alexandria, 

VA .......................................................................................................................... 13

Colinvaux, Roger, associate professor, The Catholic University of America, 

Columbus School of Law, Washington, DC ........................................................ 15 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 35 

Colinvaux, Roger: 

Testimony .......................................................................................................... 15 

Prepared statement .......................................................................................... 37 

Responses to questions from committee members ......................................... 48 

Gallagher, Brian A.: 

Testimony .......................................................................................................... 13 

Prepared statement .......................................................................................... 55 

Responses to questions from committee members ......................................... 59 

Grassley, Hon. Chuck: 

Opening statement ........................................................................................... 20 

Letter from Senator Grassley to Secretary Geithner and Commissioner 

Shulman, dated October 17, 2011 ............................................................... 67 

Letter from Senators Grassley and Baucus to Secretary Snow, dated 

February 3, 2005 ........................................................................................... 70 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 2 

Prepared statement with attachments ........................................................... 72 

Oaks, Elder Dallin H.: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 85 

Responses to questions from committee members ......................................... 92 

Roberts, Hon. Pat: 

Prepared statement .......................................................................................... 93 

Sammartino, Frank: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 95 

Responses to questions from committee members ......................................... 117 

Snowe, Hon. Olympia J.: 

Prepared statement .......................................................................................... 124 

Page

IV 

Steuerle, Dr. Eugene: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 126 

Responses to questions from committee members ......................................... 137 

COMMUNICATIONS

Alliance for Charitable Reform (ACR) ................................................................... 141 

American Council on Education, et al. .................................................................. 146 

American Council on Gift Annuities ...................................................................... 149 

Association of Art Museum Directors (AAMD) ..................................................... 159 

Association of Fundraising Professionals (AFP) ................................................... 166 

Association of Gospel Rescue Missions .................................................................. 171 

Center for Fiscal Equity .......................................................................................... 176 

CHIRA USA, LLC .................................................................................................... 180 

Council for Advancement and Support of Education (CASE) .............................. 217 

The Council on Foundations ................................................................................... 219 

Feeding America ...................................................................................................... 225 

Independent Sector .................................................................................................. 229 

The Jewish Federations of North America ............................................................ 233 

League of American Orchestras ............................................................................. 237 

MSUB Foundation ................................................................................................... 242 

Northwest Kidney Centers ...................................................................................... 243 

YMCA of the USA .................................................................................................... 245 

(1) 

TAX REFORM OPTIONS: 

INCENTIVES FOR CHARITABLE GIVING 

TUESDAY, OCTOBER 18, 2011 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:06 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Carper, Cardin, Hatch, Grassley, Crapo, 

Coburn, and Thune. 

Also present: Democratic Staff: Russ Sullivan, Staff Director; Lily 

Batchelder, Chief Tax Counsel; Tiffany Smith, Tax Counsel; Amber 

Roberts, Tax Exempt Organization Policy Staff Member; Sarah 

Babcock, Detailee; and Cosimo Thawley, Intern. Republican Staff: 

Chris Campbell, Staff Director; and Preston Rutledge, Tax and 

Benefits Counsel. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

Henry David Thoreau wrote, ‘‘Goodness is the only investment 

that never fails.’’ 

Nonprofit organizations invest in our communities. They deliver 

essential services and benefits to those most in need. They play a 

key role in creating jobs and improving our economy. Nonprofits 

employ 10 percent of the U.S. workforce. Many are small employers. Nonprofits in my home State employ 40,000 Montanans. 

In these tough economic times, the role of nonprofits becomes 

even more important. Donations are up 4 percent this year compared to 2009, but giving levels are still far below where they were 

before the 2008 economic downturn. 

At the same time, unemployment and increased homelessness 

are causing more people to rely on these organizations. Nonprofits 

are being forced to do more with less. These organizations are particularly important in America’s rural communities. That is why I 

worked with Montana nonprofits and foundations in 2006 on a 

larger long-term effort to diversify support for rural and frontier 

communities. 

Rural philanthropy fuels economic infrastructure and human resource needs by encouraging nonprofit partnerships. Local nonprofits are able to partner with schools, businesses, and government agencies to deliver results. These partners rely on the benefits of the charitable tax deduction, which is why we must ensure 

2 

the deduction is fair and effective. The foundation of tax-exempt organizations is based on a relationship of trust. Citizens and businesses invest energy and hard-earned money in nonprofits because 

they believe in their mission. 

In return, we ask that they fill a unique space that government 

and the private sector do not occupy. It is the obligation of this 

committee to ensure that nonprofits uphold their commitment, and 

it is our duty to make sure the tax code encourages charitable donations in the most efficient way possible. 

Most Americans are not able to receive tax benefits from charitable deductions since they do not itemize. Less than one-third of 

taxpayers itemized their deductions last year. Of those folks who 

do itemize, 86 percent claimed a charitable deduction, but only 27 

percent of all Americans claimed the deduction. 

People at different income levels tend to give to different types 

of charities. Higher-income households give more often to health organizations; lower-income families statistically donate more to religious or basic need charities. 

This results in the tax code giving large subsidies to some charities and smaller subsidies to others. The nonprofit sector predates 

the U.S. tax code. Our Nation’s earliest settlers formed charitable 

and voluntary associations with their neighbors to get things done. 

Americans have always valued these traditions of volunteerism, 

philanthropy, and community, and for these reasons the charitable 

deduction and nonprofit exemption were incorporated into the tax 

code. 

Today’s nonprofit organizations help to carry these values. Their 

work helps improve all of our communities. One organization that 

exemplifies these values is the Montana Nonprofit Association, and 

last month they celebrated their 10th anniversary. Their members 

have helped improve Montana on so many fronts: education, health 

and human services, arts and culture, religious and spiritual development, environmental protection, economic and workforce development, and more. This anniversary commemorates years of hard 

work, civic engagement, and a social contract in the State of Montana. I would like to take a moment to congratulate those members 

and thank them for their service to the State of Montana. 

So let us remember the wisdom of Henry David Thoreau, that 

‘‘goodness is an investment that never fails.’’ Let us invest in our 

communities. Let us encourage charitable giving in a way that is 

fair and efficient, and let us ensure that benefits get to the people 

who really need them. Let us continue to make sure nonprofits 

have the resources they need to continue their good work. 

[The prepared statement of Chairman Baucus appears in the appendix.] 

Senator Hatch? 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. In particular, I 

want to thank you for the indulgence of an extended opening statement. The issue of our tax code’s treatment of charitable contributions is of critical importance to me, to the people of Utah, and to 

millions of Americans who give every year to their churches and 

3 

their communities. I am deeply concerned that the current deduction for charitable giving is under quiet assault, and today’s testimony does nothing to diminish those concerns. 

Mr. Chairman, you have assembled an excellent panel to discuss 

the issues of our tax code’s treatment of charitable giving. I am 

particularly pleased to have Elder Oaks and Mr. Gallagher testify 

today. They are uniquely qualified by their lives of service to provide the committee with the insight that we need to understand 

the importance of maintaining the current charitable deduction. 

In advocating for the current deduction, I expect that they will 

be more diplomatic than I. But from my perspective, the tax reform 

options being discussed today are options that target charitable 

giving concocted by those who, hungry for more taxpayer dollars to 

finance reckless government spending, are now casting their sights 

on the already-depleted resources of charities and churches. I appreciate the other witnesses here today too and their sincerity, and 

I want to personally pay tribute to them for being willing to come. 

Alexis de Tocqueville wrote in Democracy in America of the importance of intermediate associations that stand between the individual and the centralized state. The Catholic Church speaks about 

subsidiarity, a principle that matters ought to be handled by the 

least centralized competent authority. To put these insights into 

constitutional terms, the Federal Government cannot, and should 

not, do it all. The truth of these moral and legal principles is embodied in the work of America’s churches and charities, which have 

played a critical role in securing the welfare of Americans in the 

face of our Nation’s worst economic disaster since the Great Depression. 

In no small measure thanks to the administration’s lack of focus 

on jobs and misguided economic policies, our economy is growing 

much too slowly, and unemployment remains stuck above 9 percent. Our jobs deficit is enormous, and neither the President’s first 

stimulus bill nor its sequels will get Americans working again. In 

this economic environment, the charitable community is more important than ever to those in need. 

As State and local governments grapple with budget deficits and 

revenue shortfalls, Americans in crisis are turning for help in ever 

greater numbers to churches, charities, shelters, and other social 

welfare groups. Charitable donations are the lifeblood of charities, 

and the last thing Congress should do is interrupt the blood supply. 

The administration proposes to cap the itemized deduction at 28 

percent, and we know the administration would raise the top marginal tax rate on individuals to 39.6 percent if it could. 

One prominent research organization that studied the President’s proposal to cap the tax deduction at 28 percent estimated 

that it would lead to a drop in total charitable giving of $6 billion. 

Now, that cannot be allowed to happen. The Congressional Budget 

Office has published a report that analyzes several proposals to 

place various limits on the charitable deduction. We will hear 

about that study today from Mr. Sammartino. 

However, most of the proposals described in the CBO report 

would result in less charitable giving, and one would cause a devastating drop of $10 billion per year in donations. Two of the proposals would increase Federal tax expenditures by $5 billion and 

4 

$7 billion per year, an unrealistic proposition in today’s deficit climate. Two proposals are projected to increase donations and reduce 

Federal tax expenditures at the same time. Frankly, that sounds 

too good to be true. As we all know, when something sounds too 

good to be true, it probably is. 

In addition to curbing the charitable deduction, proposals have 

been made to convert it to a non-refundable tax credit. The BowlesSimpson Commission proposed a 12-percent tax credit, and the 

CBO report describes a 15-percent and 25-percent tax credit. 

Now, we should make no bones about it, the changes being discussed today are radical ones. There has been a charitable deduction in the tax code for nearly a century, and the proposals on the 

table would undo it. This is not the area for experimentation by the 

Federal Government. 

Our charitable sector is just recovering from a steep drop in contributions that followed the 2008 stock market meltdown. Charities 

today face the prospect of enduring another recession that will 

again put downward pressure on charitable giving. This is not the 

time to reduce the charitable deduction and further suppress the 

incentive to give. It is certainly not the time to experiment with the 

charitable deduction by converting it into a tax credit. 

Common sense tells us that a greater charitable tax incentive 

will result in a greater amount of charitable giving, assuming the 

capacity to give exists. It seems to me that this point is overlooked 

by those who criticize the charitable deduction on ‘‘fairness’’ 

grounds, that is, on the ground that it is unfair that a donor in a 

higher marginal tax bracket receives a larger deduction than a 

donor in a lower bracket. 

Now, this sort of reasoning misses the point entirely. The tax deduction is not an end unto itself. The goal is not to reward some 

donors more than others. In fact, it is not really about the donor 

at all, it is about the charity. It is about directing sufficient resources to charities so that they can carry forward the good works 

our society so desperately needs them to perform. It makes perfect 

sense to provide the greatest tax incentive for giving to the donors 

with the greatest capacity to give. 

The upper-income donors, the ones with the high marginal tax 

brackets, are the very donors who are in a position to give substantial amounts to charity. It should come as no surprise that for 

nearly 100 years the tax code has provided such an incentive. This 

is not just an issue for high-income donors, however. It is important to remember that there has never been a floor on the charitable deduction either, nor should there be. The charitable deduction begins with the first dollar given. We should rejoice that we 

live in a country where people of all income groups give generously 

to charity. 

Studies have actually shown that lower-income Americans, those 

with fewer dollars to spare, are actually more generous than 

wealthier Americans, giving away a greater percentage of their income than the higher-income taxpayers. Think about that. Taxpayers who receive little or no additional tax benefit for giving to 

their church or charity give faithfully anyway. 

Economists have a term for this behavior. It is called ‘‘inelastic 

charitable giving.’’ I call it ‘‘giving from the heart.’’ But it is this 

5 

very behavioral prediction that has encouraged some to advocate 

for curtailing the charitable deduction by placing a floor on the deduction, a minimum amount below which no deduction would be allowed. 

Now, one proposal would deny a donor the deduction except to 

the extent their charitable giving exceeded 2 percent of adjusted 

gross income. The advocates of this proposal say the following: ‘‘An 

argument in favor of this option is that, even without a deduction, 

a significant share of charitable donations would probably still be 

made. Therefore, allowing taxpayers to deduct contributions is economically inefficient because it results in a large loss of Federal 

revenue for a very small increase in charitable giving.’’ 

Now, I have nothing against economists, but please. Economically inefficient? Inelastic giving? I do not believe that Congress 

should change current law and take away the charitable deduction 

for modest gifts merely because we can rely on kind and faithful 

citizens to continue giving their hard-earned money to churches 

and charities regardless of the tax benefit they might receive. That 

is just not right. 

Harrisburg, PA, the State capitol, declared bankruptcy last week. 

What do you think will happen to the provision of city services in 

Harrisburg? Who will step into the breach? Churches and charities 

will. Poverty in America, including childhood poverty, is reported 

to be at the highest levels since 1993. These are our neighbors. 

Who is there for them? Local governments, yes, but churches and 

charities are there, too. The food banks and shelters are busier 

than ever and in need of donations, large and small. 

I could go on, but we all have heard the stories. We all are aware 

of the need. I would like to make another point about the charitable deduction that is a very personal one for me, and for many 

Utahans and Americans across the country. 

Too often, including just recently, this administration has taken 

actions that in my view undermine the mission of our Nation’s 

churches and religious institutions. I am deeply concerned that the 

effect of these proposals to reduce the tax benefit for charitable deductions would have a similar effect, and I urge those who are considering them to think long and hard before going down this path. 

I will just close by saying that the charitable tax deduction is 

unique. It is the only deduction that encourages you not to spend 

or invest your income, but to give it away. Every charitable gift has 

one thing in common: the donor is always left worse off financially, 

but society is made better. We curtail the charitable tax deduction 

at our peril. 

Now, I look forward to hearing the testimony of these excellent 

witnesses here today and studying this as thoroughly as we possibly can. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

[The prepared statement of Senator Hatch appears in the appendix.] 

The CHAIRMAN. I am now pleased to welcome our witnesses. 

First, we will hear from Frank Sammartino, Assistant Director for 

Tax Analysis at the Congressional Budget Office. Our second witness is Elder Dallin Oaks, a member of The Quorum of the Twelve 

6 

Apostles, The Church of Jesus Christ of Latter-day Saints. I think, 

Senator Hatch, after I introduce the other two witnesses, it is my 

understanding that you would like to introduce our second witness. 

Senator HATCH. Would you let me do that? 

The CHAIRMAN. Absolutely. Let me get through the others first. 

Our third witness is Dr. Eugene Steuerle, the Richard B. Fisher 

chair and institute fellow at the Urban Institute. We will also hear 

from Brian Gallagher, the president and CEO of United Way 

Worldwide. The final witness is Roger Colinvaux, who was formerly 

on the Joint Committee on Taxation, and is now an associate professor at Catholic University of America, Columbus School of Law. 

Now, let us hear from Senator Hatch. 

Senator HATCH. Well, thank you, Mr. Chairman. I am honored 

to introduce my friend, Elder Dallin H. Oaks from Utah. Elder 

Oaks is a senior member of The Quorum of the Twelve Apostles 

and of the leadership of The Church of Jesus Christ of Latter-day 

Saints, the same church of which I have been a member my entire 

life. 

I asked Chairman Baucus to invite Elder Oaks to testify today 

not just because of his lifelong involvement in the church, but also 

because of his extensive experience in all the areas of the charitable world. The churches, social services, education, health care, 

and the arts all occupy valuable space in the charitable community. 

Elder Oaks’s life of service has touched all of these areas. Elder 

Oaks is keenly aware of the importance of the charitable tax deduction. He is the former president of Brigham Young University, one 

of the largest private institutions in the world, and has served as 

the chairman of the Board of Public Broadcasting, and chairman of 

the Board of the Polynesian Cultural Center, just to mention a few. 

All of these institutions rely to a great extent on charitable donations. Elder Oaks also has had a distinguished academic and legal 

career. He holds a BA from Brigham Young University and a J.D. 

from the University of Chicago Law School. He served as editor-inchief of the University of Chicago Law Review, and after law school 

he served as law clerk to Chief Justice Earl Warren on the U.S. 

Supreme Court. 

Elder Oaks has also served as a justice on the Utah Supreme 

Court. Elder Oaks was one of the great law professors at the University of Chicago. He is known by people all over the world, and 

frankly we are very grateful to welcome you and all of the other 

witnesses here today, in particular, Mr. Gallagher as well. He is a 

tremendous leader of a great charitable institution in our society 

today. I look forward to all of the witnesses today, and I think we 

are very fortunate to have these folks with us. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Unfortunately, I have to leave to go to another hearing. I hope 

to make it back, but in the meantime I would like you to chair this 

hearing. 

Senator HATCH. Well, thank you, Mr. Chairman. I would be glad 

to do it. 

The CHAIRMAN. Good. Thanks. 

Senator HATCH. Well, we will begin then with you, Mr. 

Sammartino, and then we will just go right across the table. Is that 

7 

all right? We would like you to keep your remarks as close to 5 

minutes as you can, but we are not going to be fussy about it if 

you need to go over. 

Mr. SAMMARTINO. I will try my best. 

STATEMENT OF FRANK SAMMARTINO, ASSISTANT DIRECTOR 

FOR TAX ANALYSIS, CONGRESSIONAL BUDGET OFFICE, 

WASHINGTON, DC 

Mr. SAMMARTINO. Chairman Baucus, Senator Hatch, and members of the committee, I appreciate the opportunity to appear before you today to discuss options for changing the tax treatment of 

charitable giving. My written testimony is taken from the Congressional Budget Office’s most recent report on that topic which was 

published last May. My oral testimony summarizes the results 

from that report. 

Under current law, taxpayers who itemize deductions may deduct the amount they donate to charities from their adjusted gross 

income when determining how much they owe in Federal income 

taxes. That deduction gives people who itemize an incentive to contribute to charities. Like other forms of preferential tax treatment, 

the deduction also costs the Federal Government revenues that it 

might otherwise collect. 

At current levels of charitable giving, the cost of that deduction, 

measured as the additional revenue that could be collected if the 

deduction was eliminated, will total about $230 billion between 

2010 and 2014, according to estimates from the Joint Committee 

on Taxation. 

In its analysis, CBO investigated how changing the structure of 

tax incentives for giving would affect the tax subsidy; that is, the 

cost in foregone revenues to the Federal Government, the overall 

level of charitable giving, and the extent to which different income 

groups benefit from the tax preference. 

In keeping with CBO’s policy, the agency makes no recommendations. Specifically, CBO looked at 11 options for altering the current income tax treatment of charitable giving. Those options can 

be grouped into four categories. The first is retaining the current 

deduction for itemizers, but adding a floor; the second is allowing 

all taxpayers to claim the deduction with or without a floor; the 

third is replacing the deduction with a non-refundable credit for all 

taxpayers equal to 25 percent of the taxpayer’s charitable donations, again, with or without a floor; and the fourth is replacing the 

deduction with the non-refundable credit for all taxpayers equal to 

15 percent of a taxpayer’s charitable donations, again, with or 

without a floor. 

For each of the four categories, CBO analyzed two potential 

floors: a fixed dollar amount, in this case $500 for single taxpayers 

and $1,000 for couples filing a joint return; and a percentage of income floor, in this case, 2 percent of adjusted gross income. Only 

contributions in excess of the floor would be deductible or eligible 

for a credit. 

Because the analysis uses data from 2006, the options that include a fixed dollar floor would have a somewhat different impact 

today than presented here. According to CBO’s estimates, adding 

a contribution floor to any of the approaches listed above would reVerDate Nov 24 2008 16:17 Jan 11, 2013 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 R:\DOCS\77208.000 TIMD
8 

duce both the total Federal tax subsidy and the total amount donated to charity relative to the same option without a floor. 

In each case that CBO examined, however, the reduction in the 

subsidy, and thus the increase in Federal revenues, would exceed 

the reduction in charitable contributions, whether measured in dollars or as a percentage change. The reason is that introducing a 

floor would continue to provide a tax incentive for additional giving 

above the level of a floor, at the same time reducing the tax subsidy for donations that people might have made even without the 

tax incentive. 

Allowing all taxpayers to claim a deduction for charitable giving 

would have increased donations in 2006 by an estimated $2 billion, 

or 1 percent of donations, and increased the tax subsidy by $5.2 billion, or 13 percent, from the 2006 amount. 

Combining a deduction for all taxpayers with a floor, however, 

could both increase donations and decrease the tax subsidy. For example, such a deduction combined with a fixed dollar floor would 

have increased donations by $800 million in 2006 and decreased 

the tax subsidy by $2.5 billion, according to CBO’s calculations. 

Replacing the current deduction with a 25-percent tax credit 

would increase donations, but also increase the government’s foregone revenues. Combining such a credit with a fixed dollar contribution floor, however, could boost donations while reducing the 

tax subsidy, while a percentage of AGI floor would decrease donations by a small percentage while reducing the tax subsidy by a 

large percentage. 

Setting the credit at 15 percent would reduce donations but 

would reduce the tax subsidy by a larger amount, both in dollars 

and as a percentage change. Changing the tax treatment of charitable contributions would have different effects on taxpayers at different points on the income scale. 

Adding a contribution floor to the current deduction for itemizers 

would reduce tax subsidies for all income groups, but for highincome taxpayers the size of the reduction would vary significantly 

depending on the type of floor used. A fixed dollar floor would have 

little effect on high-income taxpayers relative to a percentage of 

AGI floor. 

Making the deduction for charitable contributions available to 

non-itemizers would benefit lower- and middle-income taxpayers 

who tend not to itemize deductions because their deductible expenses, such as mortgage interest and State and local taxes, as 

well as charitable donations, are not large enough to exceed the 

standard deduction. 

Those groups would benefit even more if the current deduction, 

which tends to help higher-income taxpayers more because they 

face higher tax rates, was replaced with a non-refundable credit 

that gave all income groups the same tax incentives for giving. 

For example, replacing the deduction with a 25-percent credit in 

2006 would have increased the tax subsidy for taxpayers with AGI 

below $100,000, but it would have decreased the tax subsidy for 

people above that income level. Tax subsidies would be lower for 

all income groups with a 15-percent credit than with a 25-percent 

credit. 

9 

That concludes my remarks. I would be happy to answer your 

questions. 

Senator HATCH. Well, thank you, Mr. Sammartino. 

[The prepared statement of Mr. Sammartino appears in the appendix.] 

Senator HATCH. Elder Oaks, we will take your statement now. 

STATEMENT OF ELDER DALLIN H. OAKS, THE QUORUM OF 

THE TWELVE APOSTLES, THE CHURCH OF JESUS CHRIST OF 

LATTER-DAY SAINTS, SALT LAKE CITY, UT 

Elder OAKS. Chairman Hatch and distinguished Senators, I am 

Elder Dallin H. Oaks of The Quorum of the Twelve Apostles of The 

Church of Jesus Christ of Latter-day Saints. Seated behind me are 

the Most Reverend Timothy C. Senior, auxiliary to the Roman 

Catholic Archbishop of Philadelphia, and Russell Moore, dean and 

professor of christian theology and ethics at the Southern Baptist 

Theological Seminary. They have authorized me to say that they 

are in full agreement with the statement I will make. 

We appear here to speak not only for churches and their charitable works, but also for the entire private sector of which we and 

our charitable institutions are only a part. While we are religious 

leaders, the possible impairment of the charitable deduction in 

order to enhance tax revenues is not a religious issue, it is not a 

political issue, it is not even an economic issue. It poses a question 

about the nature and future of America. 

The charitable deduction is vital to the private sector that is 

unique to America. Astute Alexis de Tocqueville observed, ‘‘Wherever at the head of some new undertaking you see the government 

in France, or a man of rank in England, in the United States, you 

will be sure to find an association.’’ 

Today, millions of these private associations, religious and charitable, are responsible for tens of millions of jobs and innumerable 

services that benefit our citizens at every level. I speak of private 

educational institutions, hospitals, social welfare agencies, and 

countless other organizations ministering to the needs of children, 

youth, the aged, the poor, and citizens generally. 

The financial well-being of this private sector is dependent upon 

private contributions that qualify for the charitable deduction. The 

impact these private institutions have on those they serve is magnified by the millions of volunteers motivated by the ideals they 

pursue. 

For example, in the aftermath of Katrina and the other 2005 

Gulf Coast hurricanes, The Church of Jesus Christ of Latter-day 

Saints aided the clean-up efforts with almost 3,000 tons of emergency supplies, over $3 million in cash, and use of heavy equipment, and its members gave more than 42,000 man-days of service. 

Other nonprofit organizations provided over $3.5 billion in cash 

and in-kind donations to help with the relief efforts. 

Another example concerns the unique role of our Nation’s 

churches, synagogues, and other religious organizations. John 

Adams wrote, ‘‘Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any 

other.’’ This wise Founding Father explained, ‘‘We have no government armed with power capable of contending with human pasVerDate Nov 24 2008 16:17 Jan 11, 2013 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 R:\DOCS\77208.000 TIMD
10 

sions unbridled by morality and religion. Avarice, ambition, revenge, or gallantry would break the strongest cords of our Constitution as a whale goes through a net.’’ 

Our Nation is held together not just by law and its enforcement, 

but by voluntary obedience to the unenforceable and by widespread 

adherence to norms of right and wrong, such as the vital principle 

of honesty. For a large proportion of our citizens, these essential 

norms are grounded in the principles of our religious beliefs taught 

in our churches and synagogues. There is no need to provide other 

examples. Throughout your life, each of you Senators and those you 

love have personally benefitted from a host of private organizations, some church-related, but many not. 

The private sector of charitable activity is almost unique and 

surely uniquely valued in America, and we all understand that its 

activities are funded by private donations produced or importantly 

stimulated by a charitable deduction that reduces the donor’s 

taxes. Some economists and other scholars contend that this is in 

effect a tax expenditure because tax revenues are reduced by the 

benefit granted. 

In other words, because the government could have denied the 

charitable deduction, there is a government expenditure in its 

granting the deduction and foregoing the revenue. By that reasoning, the personal income we think is ours is really the government’s because of its choice not to take it away by taxation. That 

is surely an attitude not shared by most Americans. 

We are grateful for the charitable deductions which encourage 

donations to churches and other charities. The effect of this tax 

benefit is built into the financing of charitable enterprises that are 

vital to our Nation, and it is a significant and wise support of the 

private sector. The charitable deduction should remain unimpaired 

not just for religious institutions and their unique role, but for the 

benefit of the entire private sector of our Nation. 

The private nonprofit, non-government sector has always been an 

important counterweight to the powers and potentially repressive 

influence of governments at the local, State, and national level. The 

private sector is essential to preserving pluralism and freedom in 

our Nation. Do not reduce the charitable deduction. 

Senator HATCH. Well, thank you, Elder Oaks. 

[The prepared statement of Elder Oaks appears in the appendix.] 

Senator HATCH. Dr. Steuerle? 

STATEMENT OF DR. EUGENE STEUERLE, RICHARD B. FISHER 

CHAIR AND INSTITUTE FELLOW, THE URBAN INSTITUTE, 

WASHINGTON, DC 

Dr. STEUERLE. Thank you, Senator Hatch, members of the committee. It is an honor once again to testify before you today, this 

time on the tax treatment of charities. 

In your deliberations, I strongly hope that you will give attention 

to a message that I believe I heard from both Senator Baucus and 

Senator Hatch—that we think strongly about what message Congress is going to convey about the type of society that we want to 

encourage. 

At the same time, I have encouraged many in the charitable sector to give attention to the message they convey about helping us 

11 

to deal with our huge budgetary shortfalls and the threat that they 

pose to our people. Our mutual goal should be to enhance the 

strengths and the capabilities of all sectors of the economy—government, charitable, household, and business. Each has a vital part 

to play. 

The simple message that I hope you take from my testimony, if 

you remember nothing else, is that it is quite possible to redesign 

programs of government so that they are more effective. Senator 

Baucus spoke to this briefly at the beginning when he talked about 

targeting or making effective the various incentives for charitable 

giving. 

Regardless of the level of revenues or spending upon which you 

finally decide, it is really possible to undertake a vast range of reforms in many policy areas, not just charitable giving, but homeownership or educational subsidies, by re-targeting those incentives 

so that they are most effective at doing the very job we want them 

to do. 

Moreover, combining options creates new possibilities. Often 

when budgetary reform is considered, people pick items one at a 

time off a laundry list but very seldom consider how they can be 

combined to do a better job at achieving goals beyond just some 

simple revenue target. One that I discuss with you today can even 

increase both revenues and charitable giving—that is right, we can 

increase both revenues and charitable giving—without adding the 

IRS cost. 

So what are some elements of a legislative package that could be 

combined and ought to be considered? Well, here are some examples. For a long time you have considered extending a deduction to 

non-itemizers. I think that such could be done; however, to be done 

well, I believe you also have to do it with a floor under giving so 

that you exchange an incentive for the people who do not itemize 

now, who do not get any incentive, with a floor that is less effective 

in providing incentives. So I would consider doing both, since a 

floor does not have as much of a disincentive for giving. Extending 

the deduction to non-itemizers could increase giving quite substantially. 

I would consider providing an improved reporting system to taxpayers on charitable contributions. If we really want to simplify the 

tax code long-run—and I realize this would be a long-run measure—I think it is time that we start thinking about information reports that IRS can easily monitor. We know in the past we have 

gotten significant improvements in compliance when we extended 

information reporting to interest and dividends, as well as when 

you required Social Security numbers be reported for dependents. 

I would think about trying to limit the deductibility for in-kind 

gifts where a net amount to charity is quite low relative to the revenue cost to government. I would especially give attention to some 

of the household goods and clothes, where recent IRS data indicate 

that there are fairly extraordinary amounts of such deductions 

being taken and where it is well-known anecdotally that there are 

intermediaries who operate so that charities receive often a very 

tiny amount of money relative to the amount of deductions that are 

taken and the revenue cost to government. 

12 

To help the public monitor the charitable sector better, I would 

also require electronic filing by most or all charities. This simple 

effort could help many, including the State attorneys general and 

watchdog groups who are trying better to clean up this sector, because they would have information much more quickly. 

Now, I have already mentioned one proposal to enhance incentives. That was to extend the deduction to non-itemizers. I also 

suggest that you strongly consider allowing a deduction up to April 

15th or the time of filing. Everyone who wants to promote something knows the best time to advertise it is when people are most 

cognizant of the issue. The advertisement when you go to the grocery store that you see the day before you go to the grocery store 

is the most effective. If you would allow an incentive up to April 

15th, I believe that you would have substantial increases in giving 

at modest cost to government. 

I would also consider proposals to place less strict limits on charitable contributions. One of those you have considered and have 

adopted in the past has to do with allowing people to take deductions from their individual retirement accounts without facing a 

cap on giving. Another example I would give would be with respect 

to people who win lottery tickets. If they give their lottery ticket 

away to charity right away, it is essentially fully deductible. But 

if they give the lottery winnings to charity, they face a 50-percent 

cap on the amount of such giving that can be given away. 

And, as a final example of how you could use some of these 

revenue-raising items to actually increase incentives for giving, I 

think I would finally get around to reforming the excise tax on 

foundations. This badly designed excise tax is now penalizing those 

very foundations that keep up their giving in the recession. And by 

the way, every dollar that you collect here is one less dollar that 

goes to charity. 

So in sum, it seems to me that one can think about reform of the 

charitable incentives to both improve charitable giving and to deal 

with our budgetary shortfall. Some of the monies derived from a 

floor under charitable giving, improved compliance measures, 

greater restrictions on non-cash gifts where abuse is likely or enforcement is next to none, and a better system of information reporting could be spent to enhance charitable incentives, allowing 

taxpayers to benefit immediately from charitable contributions they 

make while filing their tax returns, extending the deduction to 

more taxpayers who do not itemize, raising the ceilings on allowed 

charitable giving for some types of gifts, and fixing the foundation 

excise tax. 

Thank you. 

Senator HATCH. Thank you, Dr. Steuerle. 

[The prepared statement of Dr. Steuerle appears in the appendix.] 

Senator HATCH. Mr. Gallagher, we will turn to you. You represent one of the largest charitable groups in the country, and we 

are interested in what you have to say as well. 

13 

STATEMENT OF BRIAN A. GALLAGHER, PRESIDENT AND CEO, 

UNITED WAY WORLDWIDE, ALEXANDRIA, VA 

Mr. GALLAGHER. Thank you, Senator Hatch. I would like to say 

thank you to Chairman Baucus, Senator Hatch, members of the 

committee. Thanks for inviting me to testify before the committee 

on this matter of critical importance not just to the nonprofit sector, but to our society in general. I urge the committee to preserve 

the charitable deduction for all donors. 

Let me start by stating that I deeply respect the work of my colleagues on this witness panel. However, I have spent my entire career, now 30-plus years, working with donors in the nonprofit sector. I know why people give, and I believe that limiting the charitable deduction would have a far greater impact on charitable giving than many estimate and would significantly affect our sector’s 

ability to deliver critical services. 

In addition to the administration’s 28-percent cap, a variety of 

other proposals to limit the deduction have been circulated this 

year. Each proposal has two common elements: they limit the value 

of the deduction for some group of donors, and they will result in 

reduced giving to charity to the detriment of individuals and families who rely on our help. 

The highest estimates of reduced giving are equal to eliminating 

all the private donations each year to the Red Cross, Goodwill, the 

YMCA, Habitat for Humanity, the Boys and Girls Clubs, Catholic 

Charities, and the American Cancer Society combined. 

I am not arguing that those organizations would not survive limitations to the charitable deduction. United Way and these major 

charities would. However, the services charities provide would be 

reduced at that scale. For United Way, we calculated that a mere 

2.5-percent reduction in revenue would result in 1.3 million fewer 

times that we can provide job training services for an unemployed 

worker, home care for an elderly citizen, service-supportive housing 

for a single mother, or a mentor or tutor for an at-risk young person. 

At a time when all manner of government-funded social service 

programs are being cut, decreasing the capacity of charities to provide services is the wrong thing to do. Those at the bottom of the 

economic spectrum have suffered the most through the recession. 

They are the ones who would bear the brunt of reduced giving to 

charity because of a tax policy change. 

Americans give for a variety of reasons. I think it is rare that 

someone gives to charity only because of a tax incentive, but tax 

incentives are often a factor in how much someone donates. I can 

tell you from my experience, large donors are very sensitive to the 

tax code. If Congress reduces the charitable deduction, you should 

expect that donors will simply withhold from their donations the 

difference necessary to cover the tax. 

The real impact would be felt by the people we serve. Within 

American culture, innovation is prized. It is most noted as an 

achievement in the American business sector. But the nonprofit 

sector is the cradle of innovation in providing services and solving 

social problems. We are dynamic and responsive to the needs of the 

people we serve. We are always finding new ways to do things 

more efficiently and with many fewer resources than government. 

14 

We are the source of much of the social innovation you have seen 

in our country for decades. This is possible because of generous private giving in America. The point is that our charitable sector is 

the envy of the world. We have an effective and efficient system. 

That is in part due to the historic treatment of charitable donations. The deductions simply track with the donor’s tax rate. 

The effect of that is that income donated to charity is not taxed. 

This connection to the tax rate is the strength and the simplicity 

of the charitable deduction. Perhaps my biggest concern about limiting the deduction is it would, for the first time, decouple the deduction from the tax rate. Once you have done that, then it is a 

simple matter of repeatedly returning to the deduction as a source 

of more revenue. 

Even when tax reform is not on the table, perhaps future wellmeaning Senators will see this as an offset for their own priority 

programs: a cap can be lowered another fraction of a percent, a 

floor can be raised a few hundred dollars, an arbitrary tax credit 

can be reduced, until there is little left to resemble a tax policy 

that reflects our Nation’s philanthropic heritage. 

This would just be the beginning of a whittling away of the charitable sector. The charitable deduction is perhaps unique among 

tax deductions. No personal gain or benefit is conferred to a donor 

by donating to charity. By allowing donors to deduct the deductions 

at the same rate as their tax rate, you are simply not penalizing 

them for giving away income. Every cent of their donation is going 

back into their community. 

In other words, while the Federal Government may be losing 

some revenue from that dollar, the entire dollar is going to advance 

the common good. What could be a better use of that dollar? We 

have to create more private investment and incentives to address 

our Nation’s growing human need. 

Getting people involved through the nonprofit sector is how you 

change society. Think about it: Mothers Against Drunk Driving, 

which led to tougher laws; Girls in Sports, which led to title IX; 

bans on smoking in public places; breast cancer awareness. It is 

not just about providing services, it is how our sector leads the way 

in movements that improve society. 

The loss of social movements like these, coupled with proposed 

reductions in Federal social service programs, could negatively impact individuals and families for years to come. Dramatic cuts by 

Congress began last year, and more are coming. The so-called 

Super Committee will likely make even more dramatic cuts, where 

automatic reductions to social services will occur. At the same time, 

States are in budget crises and making deep cuts in State-funded 

programs. But the need is not going away. 

Many, many government programs are facing cuts, but people 

will still need help paying their heating bills this winter, single 

moms will still need help with child care so they can work, and unemployed workers will still need training to return to work. We can 

help these folks pay their utilities, get child care, and get job training, but we can help fewer of them if our donations are reduced because of limitations on the deduction. 

Finally, our Nation is enduring a drawn-out jobless recovery 

which has been especially hard on the poor and middle-class. In the 

15 

short term, you could help ease the economic suffering of millions 

of Americans by enabling charities to do more. Over the long term, 

investments in social services or human success can help our Nation recover and prosper. There can be no sustained economic success without human success. There never has been. We in the nonprofit sector are investing in human success, and we need the help 

of this committee and Congress to make that investment. 

Thank you. 

Senator HATCH. Well, thank you, Mr. Gallagher. 

[The prepared statement of Mr. Gallagher appears in the appendix.] 

Senator HATCH. Mr. Colinvaux, we will finish with you. 

STATEMENT OF ROGER COLINVAUX, ASSOCIATE PROFESSOR, 

THE CATHOLIC UNIVERSITY OF AMERICA, COLUMBUS 

SCHOOL OF LAW, WASHINGTON, DC 

Mr. COLINVAUX. Thank you, Senator Hatch, members of the committee. Thank you for holding this hearing today and for inviting 

me to testify. 

Broadly speaking, there are two ways you can approach changing 

the charitable deduction. One is to raise revenue in a cost-effective 

way but not reform the deduction. Another is to reform the deduction with or without revenue goals. 

First, I want to talk about the harder of the two, which is to reform the deduction. Now, here you need to have some idea of what 

the deduction is right now and also what you want the deduction 

to look like. One window on reform for me comes back to a decision 

made long ago at the outset of the charitable deduction to link the 

two benefits, so the deduction is linked to tax-exemption. 

What this means is that the charitable deduction is not independent, rather it is dependent on tax-exemption to define its 

scope, to define its cost, and also its purpose. You have two different tax benefits, but really one foundational body of law. 

What it means is that the charitable deduction is really a support for the section 501(c)(3) sector which, if you are going to reform the deduction, means you have to care about the section 

501(c)(3) sector and exemption law itself. 

So you need to know what organizations are a part of the sector, 

how many there are, what their purposes are, how easy it is to become a 501(c)(3) organization, how the organizations are overseen, 

and whether or not all of their activities further deductible purposes. 

Now, if you are content with the law at the exemption level, then 

really there is not an issue in terms of reforming it. But if you are 

not content with the law at the exemption level, then reform of the 

deduction also means reform of the exemption as well. What is the 

state of the law at the exemption level? Well, in my own personal 

view, the exemption law is, to a certain extent, overwhelmed. It is 

operated in part on an important principle of trust, and it is difficult to verify much of what occurs in the section 501(c)(3) sector. 

Now, when I say ‘‘trust,’’ I am thinking of trust not only that an 

organization is not being abusive, but also trust that the organization is in fact serving a public benefit. Now, this may seem an odd 

view, but I do not think it is just my view. I think also Congress 

16 

itself has shown increasing frustration with the breadth of the exemption law, as evidenced by recent reform legislation in 2006 and 

also in the Affordable Care Act, where new exemption standards 

were imposed on hospitals. 

So one suggestion I have to think about reform is to de-link the 

deduction from tax-exemption. Now, I have no illusions that this 

would be easy. It would be hard, because we have been working 

under this regime for a long time. But I think there would be certain benefits to de-linking the two. 

One is, that it would force more directly a conversation about 

what the charitable deduction is for. Is it for pluralism? Is the intent of it to foster a dynamic, growing, and broad section 501(c)(3) 

sector, or is it to produce more particular public benefits, or something more concrete than pluralism? We would ask questions, such 

as whether all parts of the sector are equally worthy of support, or 

whether the deduction should be supporting the unrelated activities of 501(c)(3) organizations. 

Now, these are important and difficult questions, but it is hard 

to have this discussion when you are talking about both exemption 

and deductibility at the same time, because right now all of the decisions are made at the exemption level. 

Nevertheless, what this suggests is that reforming the deduction 

is a heavy lift, if you will. There are a lot of issues involved. I think 

it is a longer-term project, and, if the Congress decides that it 

needs to act more quickly to make changes to the deduction, then 

I suggest perhaps a different model. This is to raise revenue without reform, that is, while trying to retain the current structure of 

the deduction as much as possible and doing the least amount of 

harm to charitable organizations. 

Now, here I would just offer a few observations about the different proposals that are on the table. The first is, in my view, the 

best fit with overall current policy, which is a floor underneath the 

charitable deduction, an income-based floor. This would preserve 

the incentive effect of the deduction. It might even make it stronger 

in some cases, and it would also have, I think, considerable administrative benefits. 

The next closest to the revenue-without-reform model, I think, is 

the administration proposal to cap the value of itemized deductions. It is fairly narrowly targeted to the top rate payers, and 

some studies have indicated that the effect on overall giving would 

be modest, though not of course insignificant. 

However, I echo Mr. Gallagher’s remarks that I think there is a 

significant reform-based element to the administration proposal, 

mainly that the policy explanation for it broadly is that it reduces 

the unfairness of the deduction. I think even after that proposal, 

were it enacted, that unfairness would continue to reside within 

the deduction through the rate structure. 

What you would see would be increasing future pressure, either 

for revenue concerns or for fairness reasons, to further reduce the 

value of the itemized deduction, which I think would leave you 

with something looking very similar to a credit. 

I think a credit would be a dramatic change from present law. 

There may be good reasons to move toward a credit, but my own 

view is that it should not happen without a broader discussion 

17 

about what the public benefit of the charitable deduction is or 

should be, and without a wide consultation of stakeholders. 

And, finally, the proposal to provide direct grants to charities in 

lieu of a deduction would be a very dramatic change to the deduction and could undermine the independence of organizations. 

I see I am over my time. Thank you very much for inviting me 

to testify today. 

Senator HATCH. Well, we thank all of you for testifying. It has 

been a very interesting discussion, as far as I am concerned. 

[The prepared statement of Mr. Colinvaux appears in the appendix.] 

Senator HATCH. My first question will be for the entire panel, 

and we will start with you, Mr. Sammartino, and just go across the 

table. The President proposes to cap itemized tax deductions at 28 

percent and thereby reduce the charitable tax deduction for upperincome taxpayers. Upper-income individuals are the largest givers 

to charity. 

Estimates vary as to how much charitable donations will drop. 

I have seen estimates that range all the way up to $6 billion per 

year, but all the estimates point to a drop in donations. In addition, 

the charitable sector has not yet recovered from the drop in donations following the 2008 market meltdown, yet demand for charitable services has increased dramatically and remains high. 

I have two questions I would like to ask each of you to address. 

First, do you agree that reducing the charitable deduction will 

cause a drop in charitable donations? And two, with charitable donations not fully recovered from the recession and demand for 

charitable services remaining high, do each of you agree that this 

is not the time for Congress to consider adopting policies that will 

reduce charitable donations? 

So, we will start with you, Mr. Sammartino. 

Mr. SAMMARTINO. So, as to your first question, if there is a cap, 

just a cap or a limit on itemized deductions at 28 percent with no 

other changes, it is likely that people at high incomes would contribute less. We do not have estimates for really how much that 

would change. 

As to the second question, I do not know that I can really give 

you an answer to that. I mean, I know Congress is going to have 

to make a lot of difficult choices about what the appropriate timing 

is for lots of changes, and so perhaps consideration of the changes 

in the charitable deduction is just one among many. 

Senator HATCH. Elder Oaks? 

Elder OAKS. I believe it would result in a significant drop in 

charitable deductions. Second, I believe this is not the time for 

that. 

Senator HATCH. Thank you. 

Dr. Steuerle? 

Dr. STEUERLE. Senator Hatch, in my testimony I provide a variety of numbers that we have generated from the Urban-Brookings 

tax model simulations. We estimate that, for instance, a 28-percent 

cap on charitable deductions alone—that is not quite the President’s proposal because he has the cap on all deductions—would 

cost about $1.7 to $3.1 billion in charitable contributions. That is, 

you would have a decline. 

18 

The question about timing is more complex. If we were having 

a hearing on budget, I would be giving you numbers like, the government is now spending $31,000 a household. That is total spending by the number of households. And it is collecting $19,000 in 

taxes. That gap is causing huge, huge problems that I think we 

cannot avoid. 

So, in terms of the timing of dealing with our budget issues, I 

think we have to deal with them now. I do not know that I can 

solve the problem of the fact that there is a transition—for affected 

groups—that will take place. So the timing, I do not know. I personally, as I say, would end up trying to do something that would 

actually increase charitable giving rather than decrease it; that 

would be my ultimate goal. But as to the timing, I do not think 

there is any better time for dealing with this budgetary shortfall 

than right now. 

Senator HATCH. Mr. Gallagher? 

Mr. GALLAGHER. There is no question in my mind that a 28- 

percent cap would drive charitable giving down. There are 26,000 

people who give $10,000 a year or more to their local United Way. 

We surveyed that group. Twenty-three percent of them said any 

change to that tax rate would have a major impact on their giving. 

There is no question that it would drive giving down. 

Second, I would say the timing is bad not just on financial terms, 

but, at a time when local communities are going to have to find 

new solutions to more difficult social problems, if we start reducing 

the capacity of nonprofits and communities to do that work, it is 

just not a dollars-and-cents issue, it means that we will stop innovating in the way that really drives us to new solutions to the 

issues we face in communities. 

Senator HATCH. Mr. Colinvaux? 

Mr. COLINVAUX. Certainly all the studies indicate that there 

would be a decline in giving. I think what I can add to that is that 

one question is which types of gifts would decline, or which sorts 

of organizations would decline or see a reduction in their gifts? 

That might well depend on what the proposal is. So the proposal 

to cap the value of the deduction means that the more wealthy 

might give less, but then the charities favored by the more wealthy 

would probably also receive less, so you would want to know which 

charities would be affected. 

Senator HATCH. Well, thank you. My time is up. 

Senator Cardin, we will turn to you. 

Senator CARDIN. Thank you, Mr. Chairman. Let me thank the 

witnesses for their testimony. This is a subject that we really do 

need to deal with. Whether we are doing it in the most effective 

way now, a large part of this will depend upon what happens with 

tax reform, and we all understand that. 

But charitable giving and the incentives in the tax code are an 

important partnership with the private sector to further our mutual goals, and we need to make sure that, whatever we do on tax 

reform, we do not jeopardize that partnership, so I am sensitive to 

that. I think there are some areas that are, today, inconsistent 

with other areas in the code. 

For example, for medical expenses, we can adjust the per-mileage 

deduction that is available on the medical side. We do not have 

19 

that same authority on the charitable giving, so the use of transportation costs are not treated the same. Whenever you have inconsistencies in the tax code, it causes resentment. Now, we are hopeful we have bipartisan support for changing that, and we hope we 

will be able to change that. 

My question, though, deals with one part of the charitable deductions where I think neighbors think they are not being treated the 

same as neighbors, and that is on the valuations of gifts that are 

given. We made some modifications to that a few years back on 

valuations of gifts that are property gifts rather than cash gifts. 

I am wondering whether you have any recommendations as to 

additional changes that should be made that would add to the integrity of the system without jeopardizing the effectiveness of those 

deductions for people partnering with the private sector. Who 

wants to go? 

Mr. GALLAGHER. I will take a shot at it. One of the things, when 

the 990 was reformed a couple of years ago, maybe 3 years ago, one 

of the things that we are advocating really strongly on is putting 

the evaluation of the organizations up front and in concrete terms, 

that is, in addition to the financial disclosures that are in the 990. 

So I would not be an advocate of trying to parse what is a more 

effective nonprofit than the other. I think the market takes care of 

that if you let the market look directly into it. 

Senator CARDIN. I guess my question is this: that, when you 

make gifts of clothing or you make gifts of furniture, you generally 

get a receipt that you fill in, and you use your own self-evaluation, 

which is fine. I understand that, and most people, I believe, are 

treating that with the degree of integrity that it should be treated. 

But my question is, is that good enough? 

Are there ways that we can improve on the consistency, maybe 

give better guidance to the taxpayer as to what they can fill in so 

that we can at least assure that two people are being treated similarly in the tax code? I am not sure that is true today. At least, 

I think the perception is that it is not true. 

Dr. STEUERLE. Senator Cardin, in my testimony I testified that 

I think that there is a serious compliance problem in the non-cash 

contribution area. The complication I have in giving you details is 

that I do not think IRS conducts its studies in ways that give you 

the information you need to solve these problems. For instance, the 

blank check or the blank slip you get when you donate clothes, it 

seems to me, invites abuse. And actually, in the long run these 

types of—— 

Senator CARDIN. What is the alternative? We do not want to create a huge bureaucracy. These are relatively small dollars. 

Dr. STEUERLE. I am not sure. For clothing and household goods, 

they add up to well more than $10 billion of deductions a year. The 

average clothing deduction is well in excess of $1,000 by people 

taking it. The amount of money being deducted here is quite large. 

So, I mean, I just have some real concerns. In some areas on noncash gifts, I would actually think about requiring more reporting 

by the charities. With clothing, that is simply not possible, but 

there may have to be some severe limits. 

One thing I suggest is also going after some of these intermediary organizations. In the clothing area, we all know that we 

20 

get these calls on the phone, we get these profit-making organizations out there that go to a charity and say, give me your name 

and I will give you 10 bucks and I will go off to the people. The 

people go off and give them whatever, hundreds of dollars’ worth 

of clothing that goes to a profit-making thrift store, and the charity 

gets very little money relative to the revenue cost of government. 

I think we need some serious studies in this area. 

The question of how to get better reporting there, I do not know. 

There is even a question, I think, of whether you want to fully 

allow some of these deductions—particularly large deductions, even 

for things like clothing and household goods—without a statement 

from the charity if the abuse is that large. 

Elder OAKS. Senator, I would like to add, since I urged no modification in the charitable deduction, that I do not feel at all—and 

I am sure that my fellows do not feel at all—hostile to ideas that 

would be targeted to improve the administration of the charitable 

deduction. There are circumstances like my fellow spokesmen have 

spoken to where undoubtedly we could improve the efficiency of administration of the law and the fairness of the administration of 

the law in a relative way among taxpayers that would surely not 

be hostile to the objectives and impact of the charitable deduction. 

Senator CARDIN. Thank you. 

Thank you, Mr. Chairman. 

Senator HATCH. Thank you, Senator Cardin. 

Senator Grassley, you are next. 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, 

A U.S. SENATOR FROM IOWA 

Senator GRASSLEY. Yes. I am going to make a statement instead 

of asking questions. The purpose of the statement is to set a background for a request of you and Senator Baucus to maybe have a 

hearing on some nonprofit problems that started maybe 10—well, 

not 10 years ago, probably 5, 6 years ago. 

President Bush’s Tax Reform Advisory Panel recommended expanding the charitable deduction to all taxpayers with a 1-percent 

floor. The Simpson-Bowles Commission also recommended a floor 

and made it available to all taxpayers, but converted it to a credit. 

Thus, the various tax reform proposals preserve the incentives for 

charitable giving in some form. 

The President’s proposal to cap itemized deductions is not a tax 

reform proposal. It is a cap on itemized deductions but does not 

close any loopholes. It just discriminates against higher-income 

taxpayers. Studies measuring the elasticity of giving indicate that 

higher-income taxpayers are more sensitive to changes in tax rules. 

Simply put, the tax increase resulting from limiting itemized deductions, including the deduction for charitable giving, will result 

just in less money for charity. 

Separately, in the context of tax reform, this committee should 

examine the type of organizations that benefit from incentives for 

charitable giving regardless of how the incentive is structured. Specifically, we should consider whether it makes sense for donors to 

receive the same tax benefit for giving, even though the standards 

for charitable status are very vague. 

21 

Mr. Colinvaux proposed severing the ties between charitable deductions and the requirements for tax-exemption. Let me provide 

an example that might make the case for this proposal. During our 

tenure as chair and ranking member, Senator Baucus and I worked 

together to curb the abuses of tax-exempt status and charitable deductions. This ranged from limiting abusive deductions for contributions of vehicles and clothing to applying private foundation 

rules to certifying certain supporting organizations and donoradvised funds. 

However, we did not close all the loopholes regarding supporting 

organizations, as we were waiting on a study by the Treasury Department. That study is now 4 years overdue, and I wish the 

Treasury Department would get on the ball and finish that study, 

or start it if they have not. In the meantime, the recent Solyndra 

scandal highlights the need for further tax reforms in this area. So 

I wrote the Treasury Secretary and the IRS Commissioner about 

the George Kaiser Family Foundation, a key investor in the nowbankrupt Solyndra Solar Energy Company. 

Mr. Chairman, I request that this letter be placed in the record. 

Senator HATCH. Without objection. 

[The letter appears in the appendix on p. 67.] 

Senator GRASSLEY. The George Kaiser Family Foundation Organization converted from private foundation status to a supporting 

organization about 10 years ago. If it had remained a private foundation, it likely would not have been able to invest as much as it 

did in Solyndra or other private equity and hedge funds it invested 

in. It also would have been subject to strong restrictions on selfdealing and excise taxes on its investment income. 

Most relevant to today’s conversation, the donors to the Kaiser Foundation who contributed $1 billion in cash and securities, including non-publicly traded securities over the past 3 years, would 

have been subject to lower limits for deductibility if it had remained a private foundation. 

As some of the testimony today highlights, deductions for donations of cash and publicly traded securities to public charities are 

limited to 50 percent of adjusted gross income, 30 percent for other 

non-cash donations. These percentages drop to 30 and 20 percent 

if the donations are to a private foundation. So with Solyndra, the 

government did not just lose out on its investment through the 

$535-million loan guarantee, it also lost out on the tremendous 

subsidy it provided the George Kaiser Family Foundation through 

charitable deductions. 

Separately, our review of yesteryears of donors’ advice funds and 

university endowments showed that, since the last major overhaul 

of tax-exemption rules in 1969, there has been an explosion in 

asset accumulating public charities that are not subject to payout 

requirements or other private foundation rules. 

So as a result, Mr. Chairman and Senator Hatch, as you continue to schedule tax reform hearings, I would ask that you schedule one to examine the standards for tax-exemption and the increasingly blurred line between public charities and private foundations. 

I do not expect an answer on that now, but I would like to have 

both of you give it serious consideration. 

22 

Senator HATCH. We surely will. 

Senator Carper? 

Senator CARPER. Thank you, Senator Hatch. 

Gentlemen, welcome. Thanks for joining us today. Thanks for 

your testimony. As you know, a number of proposals have been 

suggested for reforming our tax code, including the charitable deduction. In particular, I want to focus on two of those as they pertain to your testimony today. 

One of the recommendations comes from the President’s Fiscal 

Commission, co-chaired by Erskine Bowles and former Senator 

Alan Simpson, and they recommended replacing the deduction with 

a 12-percent non-refundable tax credit, provided that the taxpayer 

donated, I believe, more than 2 percent of their income. 

The President proposed a different approach in his budget for the 

current fiscal year. In his proposal, he proposed limiting the 

itemized deductions, I believe, to something like 28 percent, not 35 

percent, for couples earning more than $250,000. 

My colleagues have heard me say this here a couple of times. 

Whenever I look at proposed changes in the tax code, I look at 

them through a prism of four questions, and I am just going to 

mention those questions briefly. I am going to ask you, using those 

four questions, or prism, if you will, how would you evaluate the 

two proposals, one from the Fiscal Commission and the other from 

the President’s budget? 

The first of the four questions that I ask is, will a particular reform proposal encourage economic growth and provide a more nurturing environment for job creation? The second question is, will it 

be fiscally responsible and provide for certainty and predictability 

that families and businesses can use and need to plan? The third 

one is, is the proposal fair? And the last one is, does the proposal 

make the tax code simpler or more complex? Those are the four 

questions that I ask. 

The changes to charitable deductions touch on, I think, several 

of those issues on the basis of the questions that I have just outlined. I would like to ask each of you to compare for us, if you 

could, the Fiscal Commission’s proposals and the President’s fiscal 

year 2012 budget proposal. 

And, if each of you is making a recommendation to the Joint Select Committee on Deficit Reduction, which plan would you be more 

likely to recommend given the prism of those four questions? All 

right. That is a pretty long question. I do not know if you all want 

to take a shot at it. If you do, that would be great. If you do not, 

we will bring a new panel in. [Laughter.] 

Would you go first, please, sir? 

Mr. SAMMARTINO. I am afraid I will have to sidestep the recommendations. 

Senator CARPER. All right. That is fine. 

Mr. SAMMARTINO. CBO is not in that business. 

In looking at the options we considered, we did look at the possibility of converting the deduction to a 15-percent credit with a 2- 

percent-of-AGI floor, which is close to the 12-percent proposal. 

I mean, we did find that it would lower both contributions and 

the tax subsidy, so as far as the effect on the economy, you have 

two offsetting—you have less money going to the charitable sector, 

23 

but you also have reduced government tax expenditures that reduce the deficit, so you sort of have competing horses there. 

In terms of fairness, I think there are a couple of things to consider in moving from the current deduction to some kind of uniform 

credit. In the current deduction, the higher-income taxpayers receive a larger subsidy per dollar of giving because it is based on 

the marginal tax rate. There are just a couple of issues to consider 

there. 

One is, if you do think that higher-income taxpayers are more responsive to changes in the price of charitable contributions, then it 

could be efficient to have a higher subsidy for them, although I 

have to say the evidence we looked at on that is inconclusive that 

they are actually more responsive. Not in terms of giving more, I 

mean, obviously they give more, but a lot of that is related to having higher income. 

But it is just whether they respond more to the price incentive 

than other taxpayers. If you think that is true, then you could be 

more efficient in giving a greater subsidy to high-income people. 

You are leveraging the tax dollars you are granting more. 

But, if you do not know or you are not sure that it is true, then 

maybe a uniform credit, where it is either 12 percent or 25 percent 

or whatever, is the more efficient way to do it because, if you do 

not know that higher-income people are more responsive to changing the after-tax price of giving, then you are not sure that you 

want to do that. 

The other question about fairness is, as we point out in our 

study, because higher-income people have higher tax rates and 

they get a greater benefit for each dollar deducted, more of the benefits from the charitable deduction go to them. But, in the overall 

question of whether or how that affects tax progressivity, I think 

you would really have to look at the whole tax system. 

So you should be cognizant of what different pieces are doing, 

but if you thought, well, this benefit to higher-income people is lowering their taxes, there are other pieces of the tax code that can 

sort of undo that so you get the desired amount of progressivity 

that you are after. So it is not very dispositive that, just because 

they benefit more from this in some way, it affects the overall progressivity of the tax system. 

Senator CARPER. All right. 

Mr. Chairman, my time has expired. If you would like, I can ask 

the other panelists to respond in writing. Would that be your preference? 

Senator HATCH. That would be fine. 

Senator CARPER. All right. Thank you very much. 

Mr. SAMMARTINO. Sorry. 

Senator CARPER. That is all right. Thanks. 

Senator HATCH. In fact, we will open it up to all panelists. If you 

care to add to your statements and care to add to this issue, we 

would love to receive your writings, because this is an important 

issue, or set of issues, I think would be a better way of saying it. 

We would love to have your expertise. 

Senator Thune, you are next. 

Senator THUNE. Thank you, Mr. Chairman. 

Senator HATCH. I am going to return. I will be right back. 

24 

Senator THUNE. All right. It is an important subject, and there 

is no question in my mind that the current tax deduction for charitable giving is one of the most important, if not the most important, incentive that we have in the tax code today. 

So I am someone who believes we certainly ought to look at and 

examine various reforms that may be proposed to the charitable deduction in the context of comprehensive tax reform, but I am hopeful that, when we do that, we remain mindful of how incredibly important charitable contributions are to religious organizations and 

other organizations out there who are caring for people in need all 

across the country. 

In my State of South Dakota, we have had record flooding this 

summer. It has affected thousands of individuals. As a result, we 

have seen neighbors helping neighbors, we have seen churches and 

charitable groups playing an essential role. These are the very 

groups that could be negatively impacted by efforts to lessen incentives for charitable giving. 

I do not believe that we should consider proposals to limit the 

charitable deduction outside of a comprehensive tax reform effort 

and simply as a means to raise revenue to pay for more spending. 

That appears to me to be what this administration has proposed. 

They believe that if you eliminate the deduction for Americans in 

the 33- and 35-percent tax brackets, that that somehow is a good 

thing. 

My fear, of course, is that charities are going to bear the brunt 

of the collateral damage that is created by a lot of these new taxes, 

and that seems to be something that has been missed by those who 

are advancing these proposals. I think the large majority of my colleagues agree with me that—none of them are here, obviously, at 

the moment. [Laughter.] 

But they agree with me that it is important that we not impair 

the ability of charities to do the things that they are doing out 

there. I offered an amendment to the 2010 budget resolution to protect the charitable deduction, and it passed by a vote of 94:3. Yet 

in spite of that, we see these repeated attempts by the administration to try to put these deductions in play, and I think we ought 

to be looking at ways that we can provide incentives for charitable 

giving and make it more effective in the context of tax reform, if 

we ever get to that point. 

Just a couple of questions, if I might. This would be for any and 

all panelists here today. The Joint Committee on Taxation report 

on charitable giving prepared in advance of this hearing indicates 

that charitable organizations provide goods and services that the 

government would otherwise provide. 

In the absence of charitable gifts, such goods and services would 

have to be provided by the government at full cost to the taxpayers. 

Have any of the proposals to alter the charitable deduction taken 

into consideration the added cost to taxpayers of providing the programs and services that nonprofits would no longer be able to afford to provide because of the reduced charitable giving? Does anybody care to take a shot at that one? Perhaps from CBO? 

Mr. GALLAGHER. No, go ahead. 

Mr. SAMMARTINO. We did not look at that in our review. 

25 

Mr. GALLAGHER. But I think it is fair to say that every proposal 

that has been floated the last couple of years is going to make the 

system more complex. It is going to make it more complex to administer. There have been lots of studies done in terms of the efficiency and the cost difference between providing services at a local 

level privately versus centrally, and you need both. But everything 

that we have seen adds complexity. All the proposals, in our view, 

add complexity to the system. 

Dr. STEUERLE. Senator, part of the problem is that the charitable 

sector and the government sector are not exactly the same, even 

though they both are aimed at serving the public good. Sometimes 

they are substitutes. 

Senator THUNE. Right. 

Dr. STEUERLE. Sometimes they are complements. I mean, a great 

many charitable activities are financed by government, and a great 

many of the things government does have come about because of 

advocacy by the charitable sector. At times, they are adversaries. 

So they fill all these roles. 

The only thing I would say, again, in the context of the much 

broader budget reforms taking place, is that all the other changes 

that are going to be taking place in these next few years, as we 

try to tackle these very large deficits, are going to have large impacts on charities. In fact, the grants to charities probably are an 

even bigger area than are the deductions. So we have to, in some 

way or another, try to figure out how to think holistically about 

these issues, and not just one at a time. 

Elder OAKS. As we think holistically about them, I urge that we 

remember that this is not just a financial issue, but, as I noted in 

my earlier testimony, the role of the volunteer whose efforts are 

not measured on financial reports is very important. If we cut into 

the charitable deduction and cut into the activities of charitable organizations, the role of the volunteer who is scooping soup at the 

soup kitchen or going to help recover neighborhoods in the Gulf 

Coast is going to be decreased. 

I think we can anticipate that the government, whatever functions it presumes to provide in lieu of the charitable sector, is going 

to call forth a great deal less from volunteers than the charitable 

organizations would call forth. 

Mr. GALLAGHER. And, Senator, if I could add to that, there are 

United Ways now in 41 countries around the world. We are directly 

counseling the Chinese government, the British government, the 

French government, in terms of, what could you put in your tax 

code to create this kind of private initiative, not just money, but 

people getting involved. 

A couple of months ago I was with Nick Hurd, who is the Minister of Civil Society for the U.K., and one of the proposals that we 

have looked at here in the U.S. is a 15-percent tax credit that 

would go to the charity. It is in play in the U.K. right now. So, 

Minister Hurd is saying to us, it is not working for us. It is too 

complex. People do not know how to use it. We are trying to get 

more private citizens involved in trying to deal with social issues, 

so it is not just an economic issue. 

This is a part of keeping private initiative in our communities to 

make sure that we have folks working together with government, 

26 

with business, and trying to solve their own problems. That the 

rest of the world is trying to put this into their tax code, and we 

are considering how to roll it out, is incredibly ironic. 

Senator THUNE. Yes. Well, I think you would never want to get 

to where you just say, we will let the government do it. I mean, 

I think you want to have people who are motivated to help other 

people. I think these incentives have played an important role in 

encouraging that kind of behavior. 

May I ask one more question, Mr. Chairman? 

Senator HATCH. Sure. Go ahead. 

Senator THUNE. All right. I am interested, too. There is a group 

called The Independent Sector, and they have indicated that there 

are nonprofit organizations out there that employ literally 1 in 10 

workers in the United States and pay $670 billion in annual wages 

and benefits. In South Dakota, we have, believe it or not, over 

7,000 nonprofit organizations that employ nearly 40,000 workers. 

So I believe that we are concerned about a near-record unemployment rate, and we want to enact policies that help create jobs and 

not create even higher unemployment. 

So given that, has there been any analysis conducted as to how 

the administration’s itemized deduction limitation might impact 

the 13 million jobs currently provided by the nonprofit sector? Has 

anybody done any analysis on that? Has CBO looked at that side 

of it? No? All right. Well, it seems to me, at least, that would be 

something you would want to take into consideration as well. 

So you have a lot of people who are employed. My guess is, if we 

were to make this change in tax policy and you saw a reduction 

in the amount that people are giving to charitable organizations 

and nonprofit organizations, that it would certainly impact employment in those organizations as well. 

Mr. GALLAGHER. Let me just say, in the area of social services, 

daycare services, shelters, and so forth, the vast majority of the 

budget is people. You know, you are not selling cars, you are not 

selling widgets, you are selling human services, and so there is a 

direct correlation between reduced funding or increased funding 

and more product, and product is people. So anecdotally, we are the 

largest private funder of human services in the country, at $3.9 billion. As our revenue goes down, our allocation to nonprofit agencies 

goes down, and where they get their cost is people. That is where 

you take cost out of a nonprofit. 

Senator THUNE. Thank you all very much. 

Thank you, Mr. Chairman. 

Senator HATCH. Well, thank you, Senator Thune. 

Elder Oaks, you have your two colleagues here as well. As I understand it, in humanitarian assistance all over the world, The 

Church of Jesus Christ of Latter-day Saints and Catholic Charities 

in particular combine to help countries all over the world that have 

disasters, natural disasters. Am I right about that? 

Elder OAKS. Oh, you certainly are. I think that would be an appropriate question for Bishop Senior to respond to further, as he 

has had an intimate role in Catholic Charities, if I could hand the 

microphone to him. 

Senator HATCH. That would be fine. Bishop, we are glad to have 

you here and would love to hear your viewpoint on this. 

27 

Bishop SENIOR. Thank you very much, Senator, and Senator 

Thune as well. It is an honor to be here with Elder Oaks as well. 

Yes, Catholic Relief Services from the United States, from the 

Catholic Church in the United States, does serve countries and 

people who have been victims of disasters all over the world. Here 

in the United States, it is predominantly through Catholic Charities agencies and the Catholic community in each diocese throughout our country. 

Ourselves, in southeastern Pennsylvania, the Archdiocese of 

Philadelphia, the five counties of southeastern Pennsylvania, including the city of Philadelphia, we are an integral part of the social service, health care, and also educational system in our region, 

particularly in the city, providing services to literally tens of thousands of people without regard to faith, and that is certainly true 

in our services in other parts of the world as well. 

But the municipalities, particularly in Philadelphia, are dependent upon the church as a partner and in some cases would not be 

able to absorb the cost, particularly in education, were we to close 

all of our 150 Catholic elementary schools in the Archdiocese of 

Philadelphia, or our 17 secondary schools. And we fund that almost 

completely with charitable dollars and provide a cost-effective, 

very, very high-quality service of education with charitable funding. 

We are dependent upon also—as was noted in your remarks and 

several others’—the smaller donor, the Catholic family or people of 

all faiths who assist us and support that, support those who are 

not itemizers. While the Catholic Conference of Bishops has not 

really gotten involved too much in tax code issues, we certainly 

want to speak out when there could be a change in the tax code 

that could affect our ability to continue to provide the services that 

our mission requires of us. 

So this is an instance where we really do believe that a significant change which would reduce the incentives to contribute, could 

affect the mission and would affect cities like Philadelphia because 

it would impede the Catholic Church’s ability to assist the community, especially those most in need, in education, in health care, 

and in social services. Thank you so much, Senator. 

Senator HATCH. Well, you are the largest denomination in our 

country. The LDS church, The Church of Jesus Christ of Latter-day 

Saints, is the fourth-largest. I have seen the two faiths all over the 

world, irregardless of membership, help with major disasters everywhere. Elder Oaks mentioned helping in Katrina, regardless of different things, or denominations, or no faith at all. I think we ought 

to continue to do that. 

Elder Oaks, do you have anything to add to that? 

Elder OAKS. No. I think the Bishop has spoken eloquently to an 

individual example of a general principle that reaches into every 

community in our country and across our borders in many places. 

I know that our own charitable work is smaller than that of the 

Catholic Church, but nevertheless significant. We are typically cooperative with organizations overseas as we say, such as Catholic 

Charities or Red Crescent, the local equivalent of the Red Cross, 

and so on. It is a worldwide ministry that is affected by the tax 

code in the United States. 

28 

Senator HATCH. Well, Elder Oaks, many people do not realize 

that the religious community does more than just perform worship 

services. Religious organizations provide food, they provide shelter 

for the homeless, they support the unemployed, give relief for victims of natural disasters, and many other services. Now, you have 

had many years of experience working within your faith, the LDS 

church. 

Now, you have also worked extensively with people of other denominations and faiths. Just give us your insights into the charitable works of religious organizations generally, not just the LDS 

church, and please explain the importance of the individual donor 

to the continuation of these policies. Now, you have done that to 

a degree, but give us a little bit more if you can. 

Elder OAKS. The individual donor, even below a floor of donation, 

is immensely important not just for the money that is funneled into 

a charitable organization, but for the commitment that an individual makes of their personal time when they have sent their dollars on to a particular effort. The work of volunteers is immensely 

important in my church, and I know from our cooperative efforts 

that it is very important in others. 

I urge, just as I did earlier in response to Senator Thune’s question, that we not overlook the impact on the individual and those 

off-balance-sheet figures which do not get considered in connection 

with financial calculations but are immensely important to the individual who is being helped in ways that my fellow panelists have 

identified. That is a very important part of this picture, and yet it 

is one that is very hard to quantify. 

The law is not only an enforcement mechanism, it is a teaching 

instrument. If the charitable deduction is modified in substance, 

not in refinement of details such as valuation and so on, but if it 

is modified in substance, that will be understood as a teaching 

message by the Government of the United States to its citizens 

generally that the private sector and charitable works are less important in our picture, and that the government is assuming this 

function. It is that message that I speak against. 

Senator HATCH. Well, thank you. 

Mr. Gallagher, in your testimony you said that 46 million Americans are living in poverty. In my own home State of Utah, the Gospel Rescue Mission of Salt Lake City wrote to me and said, ‘‘The 

demand for food and clothing has increased 30 percent.’’ They are 

serving 14,000 meals each month. That is an all-time high for this 

one small organization. They are seeing more homeless families 

and homeless single women with children. On top of all this, fundraising has declined. 

The Gospel Rescue Mission receives no government money and 

relies entirely on individual donations. Now, you said in your testimony that a mere 2.5-percent reduction in charitable donations 

would result in 1.3 million fewer times that a United Way could 

provide services to people in need. 

Now, we hear about the reduction in donations in dollar terms, 

but these reductions mean that millions of people in need will lose 

assistance. Now, has the experience of your local United Way affiliates been similar to that of the Gospel Rescue Mission in my home 

State of Utah? 

29 

Mr. GALLAGHER. It has, Senator. We run a 3-digit phone service, 

211, that allows people to call for assistance in their communities, 

and it is all across America. Last year there were over 16 million 

calls, and the call volume was up 15 percent. The calls are for exactly what you just cited. It is food, it is heating oil, it is shelter, 

it is basic need. 

As the poverty rate went up—and it is not just people technically 

living in poverty; it is people living on the edge of poverty and 

working a couple of jobs, but still struggling with food, clothing, 

daycare. The numbers are up dramatically all across the country. 

Senator HATCH. In your testimony you said that the United Way receives gifts of all sizes, from $10 to $10,000 and more. Now, the 

charitable deduction is an important incentive for all givers, and 

the deduction is based on every dollar given. 

Now, there are proposals to cap, as you can see, the charitable 

deduction. There also are proposals to place a floor on the deduction. Now, these proposals would not allow a deduction for charitable giving until annual giving exceeds either a fixed amount, 

such as $1,000, or 2 percent of income. Now, all of these proposals, 

according to the experts, would cause a drop in charitable donations. 

Now, in your experience, how much of an incentive is the charitable deduction for donors who give large amounts, and how much 

of an incentive is the charitable deduction for donors who give 

small amounts? 

Mr. GALLAGHER. Let me put it in context. Again, there are 10 

million individual donors to United Way in the U.S. Five hundred 

have given $1 million or more, 26,000 a year give $10,000 or more, 

but 93 percent of the 10 million, their average contribution is $290 

a year. Clearly, the cap at 28 percent is going to affect the highend donor. 

One of the myths that is being, I think, bantered about in this 

is that wealthy people give to only the symphony and art museums 

and so forth. Those 26,000 people give $500 million a year to 

United Way, and that is going to human services. So a top-end cap 

would definitely affect it. The floor—our estimate would be that is 

where you would feel that most, and I kind of think we are being 

a little cavalier about the floor as well because it is going to affect 

giving. 

If you are in lower cost of living communities like Utah, like 

South Dakota, like places I have worked, Reading, PA, WinstonSalem, NC, and let us say you are making $40,000 a year as a 

household, you own a home, you are itemizing. You decide to give 

2 percent of your income to charity. That is $800. You are below 

the floor, and you do not get that anymore. 

The other thing that concerns us about the floor is that it puts 

the charitable incentive into political play as it relates to revenue. 

It is going to be much easier to raise the floor in years out, much 

easier to bring the cap down a little more. It puts it into political 

play. But there is no question in our mind that a floor would have 

an impact negatively on giving to that average donor. 

Senator HATCH. Elder Oaks, in my faith, we are asked to give 

10 percent of our gross income for tithing. 

Mr. GALLAGHER. Right. 

30 

Senator HATCH. In addition, we have other donations: perpetual 

education fund, we have a welfare fund, we have all kinds of opportunities to give and to participate. 

The Church of Jesus Christ of Latter-day Saints is, to my knowledge, just about the only church that has a completely unpaid ministry and missionary system on the base level. So people volunteer 

to serve, are called to serve in various positions, which of course 

helps that particular—our particular—religion to be able to do even 

more from a charitable standpoint. 

But let me just ask this of both you and Elder Oaks. I will start 

with you. I have a question. I have been sitting here thinking 

about charitable donations to the arts. We hear criticism of the 

charitable deduction for donations to the arts, like museums and 

the opera, symphonies, et cetera. 

But current law allows entities organized in the United States 

with an educational, religious, scientific, social welfare, animal welfare, or health-focused mission to receive tax-deductible contributions. Now, this broad definition of charitable purpose allows people to form a wide variety of groups based on a common goal with 

the intent to serve a public good. 

Now, as a result, educational institutions—museums, orchestras, 

and many others—may receive tax-deductible donations. Congress 

wisely has chosen not to prefer one charitable activity over another. 

The New York Times recently published a story about a program 

for Alzheimer’s patients at the Metropolitan Museum of Art that is 

helping patients to cope with that sad and debilitating disease. 

There are numerous stories about the importance of arts and music 

in helping the under-privileged, for instance. 

I, myself, as a young kid growing up in a not very well-to-do family, was helped in these areas. Of course, music has always been 

very important to me personally. But not just that, all of these 

have been. I would like you both to share with the committee your 

experience with the importance of the arts and the significance of 

the charitable deduction in funding the arts. 

In your case, Elder Oaks, you were president of Brigham Young 

University, one of the largest private institutions in this country, 

or at least colleges or universities in this country. How would it be 

affected? But if you would cover the arts and any other matters you 

care to cover, I would appreciate that. 

I am not trying to foreclose the other witnesses from weighing 

in either, if you feel like you should. So I would be glad to have 

you comment. 

Mr. GALLAGHER. Let me say, Senator Hatch, that it would be my 

view that a tax incentive that incents the common good makes the 

most sense, and that I find it at times a slippery slope when we 

start trying to parse too directly the differences between nonprofits. 

To take your example, as long as everyone is operating within 

the letter of the law and there is compliance and you are operating 

as a nonprofit, then the arts have been a huge part of community 

development and the common good, as have museums. The direct 

examples I have seen, when you are trying to get to a young person 

who does not have the advantages of, say, others with more wealth, 

more income in their family, the way you get to that child is 

through his or her interest. 

31 

Sometimes it is sports, sometimes it is art, sometimes it is music. 

I have seen some incredible arts organizations not just deliver their 

mission, I think appropriately in a nonprofit way, in a tax-exempt 

way just in the arts specifically, but I have seen it in human development. I have seen the cross-over between arts and human services. 

The other thing that I would say—and I cannot make this point 

more strongly—is that the beauty of our system, in terms of a tax 

incentive for charitable giving, is that it is simple, it is concrete, 

it is easily understood. As soon as we start putting more and more 

layers into it in terms of definition and floors and separating donors from each other, you get more complex. What governments 

around the world have found is, the more complexity they have in 

their systems, the less private initiative there is. 

A last point on volunteers. The reason that charitable giving and 

private sector delivery of service is so efficient is that volunteers 

follow the money, and so you are leveraging somebody’s contribution. To your point, you are not paying folks who are delivering 

service along with charitable contributions. We need government, 

there is no question, but private sector initiatives are an efficient 

way to do it, and arts organizations are, I think in my view, a big 

part of community development. 

Senator HATCH. Elder Oaks? 

Elder OAKS. Thank you. I endorse what Mr. Gallagher has said 

wholeheartedly. I simply add that, on the basis of my experience 

at Brigham Young University and in public broadcasting, I know 

that, without the charitable donations, arts organizations would 

suffer disproportionately in the charitable sector. Another point to 

be made is, let us not get government into the decision of which 

charitable organizations are to be promoted and which are not. 

That ought to be made in what has been referred to as ‘‘the marketplace of donations.’’ 

Finally, I would like to invite Dean Moore to add to this point, 

if he would. He is dean of the Southern Baptist Theological Seminary. 

Senator HATCH. We would be happy to hear from you, Dean. 

Dean MOORE. Thank you, Elder Oaks. 

I would reiterate what Elder Oaks and Mr. Gallagher and others 

said earlier as it relates to giving to arts and giving to charitable 

organizations. This is not simply about economic impact, it has to 

do with what it means to form a citizenry that understands what 

persons are for, that we are not simply economic units. 

So giving to the arts, giving to religious organizations, giving to 

charitable organizations, really can serve as a workshop of compassion in demonstrating to our fellow citizens that this is not simply 

a matter of raw power, but that we have obligations to one another, 

not simply at the bureaucratic level of government, but as members of a civil society. 

So, when a person is either directed in giving to the arts and empowering a disadvantaged young person to sense something transcendent in art, or when someone is giving to charities that take 

care of orphans or widows or clean up after hurricanes, that is not 

simply about the impact on those situations themselves, it also is 

a signal and a building block of the fabric for the next generation 

32 

that teaches and shows that there are things more important than 

simply the abundance of our possessions. I think that is critical, 

whatever our political differences, whatever our religious differences, to the common good as people of the United States of America. 

Senator HATCH. Thank you so much. 

Dr. STEUERLE. Senator, may I just add a footnote here? 

Senator HATCH. Yes, sir. 

Dr. STEUERLE. In my testimony—I did not read all of it—I also 

talked about government funding of acts of generosity. It promotes 

many good things: a general spirit of giving and a development of 

mediating institutions that goes beyond just the recipient. So I 

strongly agree with these comments of your last three speakers as 

to the importance of the signal that Congress sends. 

The only footnote I would add, when we start talking about floors 

and ceilings, is that we already have a lot of them. We have a lot 

of ceilings. We have a 50-percent ceiling, we have a 30-percent ceiling, we have a 20-percent ceiling. You can play with those to try 

to find ways to send a better signal. As to a floor, we already have 

a major floor that applies to most taxpayers, which is the standard 

deduction. 

So most taxpayers—including the $40,000-a-year household that 

Mr. Gallagher talked about that probably is taking the standard 

deduction—do not have any incentive. So one can think about 

changing one floor for the other, one ceiling for the other, in ways 

that strengthen the signal. So I just encourage you to think that, 

yes, the signal is very important, but the status quo may not be 

necessarily the best way of providing that signal. 

Senator HATCH. Mr. Gallagher? 

Mr. GALLAGHER. I would just say that, again, having worked in 

communities where you can earn $40,000 as a household and buy 

a home, it means that you are itemizing. Many folks are not just 

taking the standard deduction. There is, I think—— 

Dr. STEUERLE. I am suggesting exchanging one floor for another. 

You can think about a floor, like a 1-percent floor under giving, as 

an exchange for a non-itemizer deduction. That I think, would increase giving at all levels. 

Mr. COLINVAUX. Could I add a couple of quick thoughts, Senator? 

Senator HATCH. Sure. 

Mr. COLINVAUX. One thing I wanted to emphasize, because I do 

not know that I have heard it said yet, is that, when thinking 

about the charitable deduction, I think it is important to put it into 

context as one source of support for the section 501(c)(3) sector. It 

is by no means the most significant source of support, so, when you 

look at hospitals, when you look at universities and colleges, they 

get most of their support from program service revenue, that is, 

fees for tuition or for health care. Private giving represents a fairly 

small portion of that support. Also, for—— 

Senator HATCH. I would bet a lot of them would not do very well 

if they did not have the private giving. 

Mr. COLINVAUX. That may be right, Senator. I think the point I 

am trying to make is that, when we talk about changes to the charitable deduction, and we talk about our concern of the impact it 

would have on the section 501(c)(3) sector, I think we also need to 

33 

be mindful of the other supports, including direct government 

spending through grants. So, many of the basic needs organizations 

that we have talked about rely more on direct grants from government than they do on private contribution. So there is a mix of 

funding going on there. 

May I just make one other—sorry. 

Senator HATCH. Sure. Go ahead. 

Mr. COLINVAUX. The other point I wanted to raise, because I believe it is an important one, is that I echo much of what I have 

heard, that the point of the charitable deduction in supporting the 

section 501(c)(3) sector is to generate government policy encouraging altruism, encouraging pluralism, encouraging evolution of 

ideas of what it means to be a charity. 

That is, to a certain extent, what our current system is, and 

those are all very positive symbols. But on the other hand, there 

is, I think, a risk of negative symbols that also we need to be mindful of, which can occur at the exemption level. 

So, when you have a large and growing sector that may not be 

effectively overseen or when you have the public questioning the 

public benefit of some charitable organizations, that can have negative spill-over effects that affect the image and the symbols of continuing the deduction and of continuing with exemption law as it 

is today. 

Senator HATCH. Well, at least for that organization. 

Elder Oaks? 

Elder OAKS. What Mr. Colinvaux says about the other support of 

the private sector from government is of course very true and very 

significant, but we need to remember that the support that comes 

as charitable deduction comes without strings and controls, and it 

is, therefore, immensely and uniquely important to the charitable 

sector, whereas the government support is necessarily accompanied 

by restrictions and controls. 

Senator HATCH. Well, this has been a really interesting panel as 

far as I am concerned, and I think others as well. I hope we can 

work our way through this so that we do not damage the charities 

throughout this country, especially religious freedom and all the 

good that religious entities do for our society. 

But I personally have appreciated all the testimony of each and 

every one of you. I am sorry I have kept it going so long, but I just 

want you to know this is a very important hearing in my eyes, and 

I think in yours as well. So I want to personally express my gratitude on behalf of this committee to each and every one of you, and 

with that we will recess until further notice. 

[Whereupon, at 11:54 a.m., the hearing was concluded.] 

(35) 

A P P E N D I X 

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