Article Archives >> Lead Stories >> January 16-31, 2005

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Congress Accelerates Deductions
For Tsunami Relief Contributions
Bill permits deduction in 2004 for contribution
made in January 2005 to aid victims of tidal wave

Congress has unanimously passed a bill (H.R. 241) to allow U.S. taxpayers to accelerate deductions for cash contributions made in January 2005 “for the relief of victims in areas affected by the December 26, 2004, Indian Ocean tsunami.”

The bill treats such contributions that would otherwise qualify as charitable contributions in 2005 as having been made on December 31, 2004. This allows individuals and other calendar year taxpayers to claim the deduction on 2004 tax returns. The bill, however, covers only “cash” contributions. It does not cover in-kind contributions that many relief organizations say are not the most helpful in early stages of relief efforts.

Senate Finance Committee ranking member Max Baucus (D-Mont.), who proposed the bill, said it would be “a great benefit to those in need.” Committee Chair Charles Grassley (R- Iowa) said he hoped it would encourage the public “to give more,” but urged Americans to “make sure the charities they choose are above board.”

House Ways and Means Committee Chair William Thomas (R-Calif.) said he hoped “this small incentive” would encourage more gifts now. Ranking member Charles Rangel (D-NY) praised the leadership for coming together “as members of the human community who want to help.”

President Bush signed the measure on January 7 without comment.

YOU NEED TO KNOW

Congress has once again shown how easy it is to agree on something that appears wonderful and feels good, but is essentially meaningless, and maybe even detrimental.

Assume that a married couple in the highest marginal tax bracket of 35% (for those with income of more than $311,950 last year) gives an extra $1000 to tsunami relief this month. The couple will save $350 on taxes this year instead of having to wait to take the deduction and save the tax next year. If the couple invests that saving in a money market account at 2%, they will earn $7 until the deduction would have been available next year. That’s hardly the cost of a first run movie, even if one spouse stays home. For the vast majority of taxpayers in lower tax brackets and for those who give less than $1000, the benefit is obviously even less.

Yes, you say, but it is symbolic support and may encourage additional gifts. A day after Congress passed the law, Doctors Without Borders, winner of the 1999 Nobel Peace Prize, asked the public not to give it more for tsunami relief. It had enough for Asia at the moment; it needed funds for the many other crises it is trying to deal with throughout the world. That is exactly what the American Red Cross did NOT say shortly after 9/11, a failure that caused a huge backlash when it became apparent that the Red Cross expected to use some of the funds for other disaster relief projects.

A donor doesn’t get the deduction this year if the donor gives to Doctors Without Borders for its other projects — unless, of course, the donor lies on the tax return.

Many charities have consistently taken the position that the government should not use deductions to favor one charity, or one type of charity, over others. Charity as a whole helps society. No one kind is necessarily more worthy than another. In many cases, charitable contributions support a pluralism that would never be supported by a majority in a legislature.

Do we really want the government to skew gifts to Sri Lanka or Indonesia instead of to Sudan or inner city America? By favoring tsunami relief, even though it is far more symbolic than real, Congress starts down a slippery slope.

Article Archives >> Lead Stories >> January 16-31, 2005