Statement of Kenneth Gladish, Ph.D, National Executive Director, YMCA of the USA
on behalf of Independent Sector

Testimony Before the House Committee on Ways and Means

Hearing on President's Tax Relief Proposals that Affect Individuals

March 21, 2001

Mr. Chairman and Members of the Committee:

I am Ken Gladish, National Executive Director of the YMCA of the USA. Together, the volunteer-run, community-based YMCAs are the nation's second largest national nonprofit organization. Across the country, there are nearly 2500 YMCAs serving nearly 17 million people, half of whom are youth. We serve all ages, incomes, abilities and faiths through a variety of programs including child care, delinquency prevention, health and wellness, teen centers, and family programs. YMCAs collectively are the largest providers of child care and school age care in the country - serving 9 million youth in out-of-school time. To successfully provide these and other critical youth and family programs, last year YMCAs raised $682 million in charitable gifts and had over 600,000 volunteers give of their time and energy.

The YMCA of the USA is proud to be a member of Independent Sector, a nonpartisan, nonprofit coalition of over 700 national voluntary and philanthropic organizations that share a commitment to strengthening communities through philanthropy, volunteerism, and citizen initiative. I am honored to testify on their behalf this morning about the tax incentives President Bush has proposed to encourage charitable giving by all Americans.

America's charitable nonprofits, both secular and faith-based organizations, are vital to our democracy and our quality of life. We depend on a strong base of charitable giving to sustain programs and services that benefit all citizens, particularly our most vulnerable individuals and families. Our tax code has been and remains the most powerful tool available to send the message that we as Americans highly value and strongly support charitable giving. But today, that message goes out only to the 30% of taxpayers who itemize their deductions. The tens of millions of hard-working low- and middle-income Americans who claim the standard deduction do not receive any recognition or encouragement through the tax code for their charitable giving. Intended or not, the message those taxpayers receive is that their charitable contributions are not worth counting.

Tax policy should strongly encourage giving by all Americans - not just those taxpayers who itemize deductions. President Bush's proposal to extend the charitable contributions deduction to all taxpayers would provide that strong incentive and encouragement. We applaud and endorse the legislation introduced by Representative Philip Crane (H.R. 777) and Representative Jennifer Dunn (H.R. 824) which includes this critical provision of the President's tax plan. Enacting the charitable deduction for taxpayers who do not itemize their deductions is the only real way for Congress to send the message that charitable giving is an important value for all Americans.

Beyond its powerful symbolic importance, the non-itemizer deduction would provide a strong stimulus for increased giving and new givers. A recent report by the National Economic Consulting Division of PricewaterhouseCoopers concluded that had the non-itemizer deduction as proposed by President Bush been in effect in 2000, total charitable giving would have increased by $14.6 billion - an increase of 11.2%. Perhaps even more important, PricewaterhouseCoopers concluded that the non-itemizer deduction would have stimulated charitable gifts by 11 million Americans who would otherwise have given nothing. The long-term importance of encouraging these millions of Americans to develop the habit of giving will be invaluable to the ability of charitable nonprofits to carry out the programs and services so imperative to the continued health and vitality of communities throughout America.

There is further clear and compelling evidence that providing a non-itemizer deduction would dramatically increase charitable contributions. In 1981, Congress enacted the non-itemizer deduction on a 5-year trial basis from 1982 to 1986. The deduction was phased in gradually and was in full effect only in 1986. Significantly, between 1985, when non-itemizers were allowed to deduct only 50% of their contributions, and 1986, when non-itemizer gifts were fully deductible, total giving by non-itemizers increased by 40%, according to IRS data.

Sadly, since Congress permitted that legislation to sunset in 1986, seven of ten taxpayers can no longer deduct their charitable contributions and the resulting loss in charitable giving has been substantial. A recent analysis drawn from the Spring 2000 IRS Statistics of Income Bulletin shows a dramatic difference between the amounts contributed by itemizers and non-itemizers in every income group.

The increased charitable contributions that will result from the non-itemizer deduction will provide much needed funding to thousands of community-based and religious organizations that are addressing America's most urgent social concerns. Well over half of the contributions made by non-itemizers go to religious and human service organizations. A tax deduction for charitable contributions will provide additional funds to those non-itemizers who already give to increase their donations, and it will provide the needed incentive to new givers to make contributions to the agencies that serve their community.

With the increased contributions produced with the non-itemizer deduction, community-based organizations, like the YMCA, will be able to continue to provide vital social services. These very contributions will allow YMCAs to effectively serve the growing needs of our country's youth. The YMCA has recently launched the YMCA Teen Action Agenda - a national campaign to double the number of teens we serve from one in ten to one in five by 2005. We are committed to providing teens with the services and support, such as GED and job training, mentoring, tutoring, and computer skills training, to become contributing members of society. To succeed at this auspicious goal and effect change among disadvantaged teens and their families, in particular, the YMCA will have to raise substantial funding - much of which will have to come from individual contributions. We are currently partnering with JCPenney Afterschool Alliance and PepsiCo, which have generously provided critical corporate support for Y teen programs. But, this provides only a start. To serve 4.8 million teens, caring, committed individuals in communities across our nation will have to generously contribute to their local YMCA. The non-itemizer deduction will prove critical in making this a reality. No other measure could do more to strengthen America's vital infrastructure of community-based service organizations.

The non-itemizer deduction would be simple for taxpayers and easy for the IRS to administer. It is hard to imagine a tax provision easier to explain. The message to non-itemizers would be simple and clear: when you donate to a charitable nonprofit, you can take a deduction off your taxes. The deduction would require only a single additional line on the Form 1040EZ, and the IRS has already developed clear, user-friendly instructions explaining what types of contributions are and are not deductible for itemizing taxpayers.

A first-dollar non-itemizer deduction would not create an unreasonable compliance risk. Itemizers - whose gifts account for 80% of all charitable giving - have always been allowed a first-dollar deduction for their charitable gifts. Congress has never viewed this as creating an unacceptable compliance risk, and there is no reason non-itemizers should be treated less favorably.

A first-dollar non-itemizer deduction does not give an inappropriate double tax benefit for charitable contributions. Congress has never viewed the standard deduction as including an explicit charitable contributions component. Instead, Congress has fixed the amount of the standard deduction based on its desire to encourage a high proportion of Americans to use the simpler "short form" tax form. There is no policy tension between maintaining the standard deduction and allowing a first-dollar non-itemizer deduction. In fact, there is clear precedent in the 1981 legislation that permitted non-itemizers to take a standard deduction and to deduct their charitable contributions.

Implementing the charitable contribution deduction without a floor will have the most positive effect on increasing contributions and encouraging new givers. The PricewaterhouseCoopers study I referred to earlier found that a non-itemizer deduction without a floor would have produced a $14.6 billion increase in giving in 2000 and would have stimulated 11 million Americans who had not previously donated to begin to develop a lifetime habit of giving. By contrast, the PWC study showed that imposing a $500 floor would have stimulated only $3.7 billion in increased gifts.

Another study by the Urban Institute, using a different charitable giving model, also found that allowing non-itemizers to deduct charitable gifts beginning with the first dollar given would stimulate more giving than allowing a deduction only for gifts in excess of a floor of $250 for single filers.

Last, but not least, the non-itemizer deduction would provide important tax relief to low- and middle-income Americans. In recent months, broad consensus has emerged on the importance of enacting a significant, broad-based tax cut. Major tax relief for America's hard working low- and middle-income families must surely be a part of any such legislation. The non-itemizer deduction is an extremely attractive means of providing part of this needed tax relief since the deduction would achieve three important social goals rather than just one - it would reduce taxes, target those cuts to low- and middle-income taxpayers who make up the majority of non-itemizers, and encourage increased charitable giving to the thousands of community-based and faith-based nonprofits that are on the front lines of helping our neediest citizens.

It is important to note that this benefit will only extend to taxpayers at the lowest income levels if the legislation allows a deduction for the first dollar given. Adding a floor below which contributions could not be deducted would immediately put this important deduction beyond the reach of many low-income non-itemizers. Low-income non-itemizers considering making gifts early in the year often won't know whether they'll be able to make total gifts during the year in excess of the floor. And thus, they won't know whether any of their gifts will be tax deductible. This is hardly the way to affirm the importance of their gifts.

IRA Charitable Rollover Incentive Act

President Bush's tax proposals include other incentives to increase charitable giving which we know will receive careful attention from this committee. Before I conclude, I would like to add our voice of support for one other specific proposal, and that is the provision in the President's proposal that would make it easier for individuals to donate funds from their Individual Retirement Accounts to charities. The IRA Charitable Rollover Incentive Act (H.R. 774) removes the tax barriers to such donations by allowing donors to exclude from their taxable income any IRA funds rolled over to a charity. This proposal is widely supported in the nonprofit sector, and would, if enacted, unlock substantial new resources for the support of charitable organizations and their public-service missions. Although charitable organizations frequently receive inquiries from potential donors about giving regular IRA funds during their lifetimes, when donors realize that they may have to pay a significant amount of tax to make the contribution, these types of gifts rarely get made.

This proposed legislation is good public policy. It would unlock substantial new resources for the support of charitable organizations and their public-service missions. There are many middle-income Americans who have accumulated funds in their IRAs that, as a result of favorable markets and moderate inflation, now exceed their needs and expectations and who would like to contribute some of those funds to charity if it would not have detrimental tax consequences.

The work of our secular and faith-based charitable nonprofits is integral to strengthening communities throughout our country and addressing the pressing issues and concerns they face today. The non-itemizer charitable deduction will provide significant help in recognizing and encouraging charitable giving by all Americans to support these important efforts. Moreover, it will provide the needed incentive to spur more Americans to get involved in community-based organizations and begin a life-long habit of making charitable contributions. Thank you for the opportunity to share our views on these important provisions in President Bush's tax plan to encourage increased charitable giving. I would be pleased to answer any questions that you may have.

Independent Sector

A Charitable Tax Deduction for Nonitemizers Should Be Enacted by Congress

Since Congress permitted the charitable tax deduction for nonitemizers to sunset in 1986, seven of ten taxpayers, the nonitemizers, can no longer deduct their charitable contributions and the resulting loss in charitable giving has been substantial. This becomes obvious when a comparison is made of the amount contributed by itemizers and nonitemizers who are in the same income groups.

The average annual amount contributed per tax return for itemizers is $2708; the average for nonitemizers is $328.

Eighty-seven million tax filers are nonitemizers. It is clear that if all nonitemizers raised their contributions to the amount given by itemizers, giving would increase greatly. In fact, charitable contributions by nonitemizers increased by 40% or $4 billion from 1985 to 1986, according to Internal Revenue Service data. Nonitemizers were permitted to deduct only 50% of their charitable contributions and they gave $9.5 billion that year. In 1986, they could deduct a full 100% and, according to the IRS, they gave $13.4 billion - an increase of 40%. The message from that experience is apparent. Charitable tax deductions do stimulate substantially increased giving from middle income Americans.

Nonitemizers are low to middle income American households (70 million have incomes under $30,000 a year) who support services such as the Red Cross and the American Cancer Society. They give to churches and synagogues, environmental organizations, schools, colleges, hospitals, food programs for the homeless, and the Boy Scouts and Girl Scouts. They give to advocacy organizations, health research, the arts, international development, and myriad activities in the public interest that enrich our society and protect its people. Congress should enact a legislation that will permit these moderate income Americans to take a deduction for their contributions to charity.