Debating change to rules on charitable deductions

Americans have been hearing quite a bit about charity these days. President and Mrs. Bush were featured in public-service announcements over the holiday thanking them for their giving.

Americans are generous.

Last year they contributed an estimated $203 billion to various philanthropic efforts. That's 2.2 percent of gross domestic product, the nation's output of goods and services.

Since Sept. 11, they have donated $1.4 billion to charities, helping out the victims of the terrorist acts in New York and Washington.

The problem is that giving to causes unrelated to these charities fell off.

A concerned White House has joined in efforts to pep up giving. "The generosity of this country will say to the world that we're a nation that will not be affected by terror and evil," Mr. Bush said last Tuesday. "I ask Americans to dig a little deeper in their pocket."

The administration also hopes to revive chances for passage by Congress of the "Armies of Compassion" legislation it proposed earlier in the year.

That proposal would enable taxpayers who use the standard deduction and do not itemize their charitable contributions to also claim a deduction for charitable gifts.

The latest statistics show that in 1999, the 35.5 million taxpayers who itemized claimed $125.8 billion in donations.

So more than 80 million nonitemizers would be eligible for the new tax break as it was phased in over five years.

The proposal also would allow taxpayers to make charitable contributions tax-free from their Individual Retirement Accounts. The cap on corporate charitable gifts would be raised.

It also includes a "faith-based initiative," giving religious ministries new and wider access to federal contracts and grants.

But the proposed legislation would be costly to Uncle Sam. The Office of Management and Budget in the White House says $56 billion in revenues would be lost over 10 years. The Joint Tax Committee of Congress estimates $90 billion.

"It's hard to imagine that anything this expensive could go through in the current climate," says Richard Kogan, an economist at the Center on Budget and Policy Priorities in Washington. The federal budget is already in deficit this year and perhaps next year.

Senators Joseph Lieberman, a Connecticut Democrat, and Rick Santorum, a Pennsylvania Republican, have been negotiating a compromise that would be less generous to taxpayers. The cost remains a sticking point, involving the Senate leadership. The bill drops for now the controversial provision giving churches access to government funds.

The White House expects the bill to be introduced in the Senate this week. "We are encouraged by the progress," says Scott McClellan, a spokesman.

"Not all the i's are dotted," says Dan Gerstein, Lieberman's spokesman. Nonetheless, the hope is passage before Congress adjourns in December.

House Republicans have already passed a bill close to the one sought by the president.

Taxpayers who didn't itemize were allowed to deduct or partially deduct charitable contributions in 1985 and 1986.

Then, in 1986, a tax reform bill wiped out that provision, along with many other tax breaks. An enlarged standard deduction was meant to save smaller donors the burden of tracking their donations for tax purposes.

From an Internal Revenue Service standpoint, renewing that break could be a problem.

"It would be almost impossible to monitor," says Joel Slemrod, a tax expert at the University of Michigan Business School in Ann Arbor. Some may overstate their deductions, just as some itemizing taxpayers do.

When Bush spoke on charity last week, he also announced that the Department of Housing and Urban Development was making more than $1 billion in grants to provide housing and supportive services to homeless families and individuals. It was made to a group of volunteers at the charity organization So Others Might Eat (SOME), which provides meals, shelter, and other services to the homeless in Washington.

The federal contribution, up $46 million from the year before, was approved by Congress under President Clinton. The appropriation for next year, now before Congress, will add $5 million.

Advocates for the homeless are worried that the economic slump and the five-year limit on welfare payments will boost the number of homeless in the months ahead.

Already, charities helping the homeless, perhaps 500,000 in summer, 900,000 in winter, are stretched. "The money is not adequate at this point," says Alexa Sewell, a policy analyst at the National Alliance to End Homelessness in Washington. She worries that more people will end up on the streets or in crowded shelters.

Ms. Sewell would like more money from Washington, especially for permanent housing for those unable to look after themselves. But that's not likely.

So private charities will be seeking more money to help.