About 60 percent of the formerly homeless men and women served by Homestretch in Falls Church, Va., lost their jobs as the coronavirus spread through the area. One single mother of four children survived domestic violence, got a job at a pizza parlor, earned a promotion to manager, and began taking business management classes. But when the pandemic struck, she lost it all, according to Chris Fay, the ministry’s executive director.
To help people like that mother, Homestretch relies on donations. Fay said 97 percent of the ministry’s budget comes from the private sector, which is under intense economic pressure right now. That’s why a bipartisan group of lawmakers in Congress wants the next coronavirus stimulus package to incentivize charitable giving.
“We cannot overlook the needs of these community-based institutions and must ensure that charitable nonprofits are fully supported in their service on the front lines of responding to the COVID-19 crisis,” a bipartisan group of 30 senators and 16 members of the House of Representatives wrote to Senate and House leaders. The proposal would tweak the tax code to allow people who donate to charity after March 13 and before July 16 to claim the donation as a deduction even if they take the standard deduction on their income tax return.
Supporters said the change would remedy a provision in the 2017 Tax Cuts and Jobs Act that may have had the unintended effect of depressing charitable giving. To simplify the way people filed their taxes, lawmakers doubled the standard deduction to $24,000 for married couples filing jointly. Only about 1 in 10 taxpayers—those in the highest-income bracket—now itemize their deductions. That means they get no extra tax relief for donations they make throughout the year.
Analysts at both the right-leaning American Enterprise Institute and the left-leaning Tax Policy Center predicted the change would result in lower charitable giving—and that’s what happened. Even as the economy boomed, giving declined by 1.1 percent, according to U.S. Treasury Department data.
The $2.2 trillion economic relief bill Congress passed in March added an “above the line” deduction for gifts to charities of up to $300. That means people can deduct from their taxable income the amount of their giving plus the amount of the standard deduction. Changes proposed in Congress, which vary slightly between the House and Senate, call for the tax deduction to increase and extend into next year. It’s unclear what a final proposal will look like.
Russell Moore of the Southern Baptist Convention’s Ethics and Religious Liberty Commission supports removing the $300 cap.
“That level of stimulus does not scratch the surface for what charities, nonprofits, and houses of worship need during this time of crisis,” he wrote.
And the charitable sector plays a major role in the economy: Nonprofit groups employ more than 12 million people in the United States and account for 10 percent of the gross domestic product.
Kevin Scally, chief relationship officer at Charity Navigator, said most nonprofit organizations are “forecasting a 30 to 40 percent decrease in revenue between the months of March and June.”
Skeptics of the proposal argue the tax deduction model is ineffective, and it is hard to verify donations are legitimate. Eugene Steuerle, a fellow at the Tax Policy Center, told Bloomberg Tax that such models can be ripe for abuse.
Homestretch’s Chris Fay supports any kind of tax incentive for private giving.
“Everybody who gives to us—foundations, churches, private individuals, companies—are very much dependent on the economy,” he said. “We’re anticipating a rough year.”