CBO outlines 11 options for reforming the tax treatment of charitable contributions, 9 of which are designed to lessen the revenue lost from how the current tax code treats such contributions. The tax subsidy in 2006, the year CBO used for their detailed simulations, was 40.9 Billion on total contributions of 203 Billion. CBO also estimates the impact of two policies (options 3 and 6) that would expand the tax benefits of charitable giving, by extending them to taxpayers who do not itemize deductions. Table 3 provides the essential overview:
The bottom line of this detailed analysis is that for the 9 options simulated that would lessen the current tax preference provided to charitable giving, CBO finds that the deficit reduction achieved is larger than the subsequent reduction in charitable giving. None of these reforms would eradicate our budget deficit by any stretch, but they would be a move toward balance, and charitable contributions would not decline by that much.
In the budget talks that are ongoing, tax reform may be the only politically possible way in which to raise revenue. While most everyone says they want to reduce the deficit, and many say that we need tax reform, once you get down to ending specific subsidies in the tax code, most people head for the hills (well, not that tax preference….). It is unimaginable to me that a reduction in the tax preference of charitable giving could pass both Houses of Congress as a stand alone measure. As part of a larger package, then maybe. That is why a bigger tax reform deal seems more likely to me than a small one, though I wouldn’t bet the farm on either.