NCPA - National Center for Policy Analysis

Incentives to Give

May 6, 2003

It looks as if the nation's charities are about to get a much-needed boon. In early April, the Senate finally passed long-stalled legislation that would provide up to $13 billion over 10 years for a slew of new tax breaks for contributions to charities and nonprofits.

The new inducements for Americans to open their wallets could boost philanthropic donations by several billion dollars over the next decade, experts say. If the bill becomes law, its biggest impact will be to spur charitable giving.

  • It would allow the 86 million people who don't itemize their taxes -- generally lower- and moderate-income Americans -- to deduct charitable contributions of $250 to $500.
  • It would allow anyone 59 1/2 or older to transfer individual retirement account assets to a charity without having to pay a tax penalty.
  • Tapping into even a sliver of the total $2.5 trillion in Individual Retirement Accounts (IRAs) could shower charities with billions.
  • A disproportionate amount likely would go to nonprofits such as colleges, which have strong ties to the wealthier donors who would be most able to part with some IRA savings.

The most novel part of the Senate bill -- using an unusual definition of charity -- is one to help the working poor save more.

  • A limited program for up to 300,000 poor families -- defined as those with heads of households making less than $30,000 a year -- would match their savings in an "individual development account" dollar for dollar, up to a maximum of $500 a year.
  • The accounts could be used only to buy a first home, start a small business, or pay for post-secondary education.

Source: Alexandra Starr, "The Senate's Gift to Charity: Donations could jump if the House passes a long-stalled bill," BusinessWeek, May 5, 2003.


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