Tax Reform Proposals and the Charitable Deduction

Tax Reform Proposals and the Charitable Deduction

News story posted in Legislative on 8 April 1998| comments
audience: National Publication | last updated: 18 May 2011
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Summary

Flat Tax or X-Tax? PGDC Chief Legal Editor Emil Kallina comments on the progress of tax reform proposals and how the charitable deduction is faring.

As the debate continues to rage in Washington regarding tax reform and bills to amend the Internal Revenue Code continue to proliferate, it is interesting to note two things from the charitable perspective.

First, some recent proposed legislation is contemplating a charitable income tax deduction as an important element. For example, the Senate passed its 1999 Budget Resolution on April 2, 1998. Of particular note is the Senate's 59-40 vote, as a non-binding resolution, in favor of eliminating the Internal Revenue Code by the year 2002, with the proviso that a replacement code system should contain both the mortgage interest and charitable contribution deductions.

In a similar vein, one of the latest tax reform proposals, the "X-Tax," would likewise include a provision to accommodate the charitable income tax deduction. The X-Tax is a variant of the flat tax, containing a tax on business based upon the "sales minus purchases" formula (the so-called "subtraction formula") and a consumption tax on workers.

Unfortunately, the Democrats have not been as pro-active in promoting charitable tax incentives. For example, in an announcement on April 1, 1998, House Minority Leader Richard A. Gephardt proposed to simplify the tax system, but did not specifically provide for charitable tax incentives.

A second interesting observation on Washington is that more and more commentators on the tax law are expressing dismay over the tax rhetoric of "simplification." In a symposium at St. John's University School of Law on March 17, Treasury's acting Tax Legislative Counsel Clarissa C. Potter wondered what voters would think of all of the "details" involved in the tax simplification bills being promoted. In a similar fashion, Leslie B. Samuels, a former assistant Treasury secretary for tax policy in the Clinton administration, reflected on Congress' almost "irresistible urge" to add tax provisions, stating that he did not ever expect this massaging of our tax code to end.

We will keep you informed as developments occur.

Emanual J. Kallina, III, J.D., LL.M.
Chief Legal Editor

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