Effective December 31, 2012, Congress passed The American Tax Relief Act of 2012 (the “Act”) to avoid the fiscal cliff and President Obama is expected to sign the bill into law. The full text may be obtained by clicking here. In a Chronicle of Philanthropy article (which may be obtained by clicking here), Doug Donovan writes that the Act may hurt charitable giving in light of the fact the Act “reinstates a provision eliminated in 2010 that reduces itemized deductions by 3 percent of the amount that household income exceeds $300,000.” Mr. Donovan goes on to explain that “[w]rite-offs grow more limited the more taxable income a person has and could reduce the value of deductions by up to 80 percent for the highest-income taxpayers, according to the Tax Policy Center.”
Although it is too soon to gauge the actual impact of the Act, on its face such a provision would arguably have a negative impact on charitable giving. However, exactly how significant the negative impact depends on several factors, including the importance of the income tax deduction to donors impacted by the provision, as well as the relative amount donated to charity by such impacted donors vs. all other donors. To the extent charitable giving increased in 2010-2012 due to the elimination of the 3 percent reduction rule for itemized deductions for such donors, such a fact would arguably support the conclusion that charitable giving will now decline. However, it may be difficult to gather such data in light of the economy in 2010-2012. Regardless, we will continue to monitor and report as we see new developments.