Public Policy

The Status of Charitable Relief Tax Initiatives
On July 19, the House of Representatives passed the Community Solutions Act, H.R.7, on a largely party-line vote of 233-198. The Community Solutions Act, sponsored by Representatives J.C. Watts (R-OK) and Tony Hall (D-OH) has four titles dealing with various aspects of the President's Faith-Based Initiative and other issues of importance to charities. Title I of the bill involves tax incentives to spur donations to charities, Title II involves the expansion of "charitable choice," and is considered the most controversial aspect of the legislation, Title III involves the expansion of Individual Development Accounts, and Title IV provides liability protection for certain types of in-kind corporate donations.

America's Second Harvest has not endorsed H.R. 7 due to the significant controversies surrounding the President's Faith-Based Initiative and a lack of consensus in our network regarding the Constitutional issues that the initiative raises.

America's Second Harvest is, however, very much involved in the tax incentive issues contained in the bill and, most importantly, Section 104 of H.R. 7, which concerns tax deduction incentives for food donations. When it was initially introduced, Section 104 of H.R. 7 contained the provisions of S. 37, the "Good Samaritan Hunger Relief Tax Incentive Act" that Senators Lugar (R-IN) and Leahy (D-VT) filed on behalf of America's Second Harvest. Unfortunately, during the mark up of H.R. 7, the House Ways and Means Committee opted to substitute the Lugar-Leahy tax provisions with a significantly scaled back version of the Good Sam Tax Bill. The Committee chose to substitute the provisions of S. 37 with tax provisions included in legislation introduced by Senator Mitch McConnell (R-KY) and Congressmen Amo Houghton (R-NY) and Tony Hall as a stand-alone bill, S. 880/H.R. 1659.

What's the Difference?
The substantive differences between the two competing tax provisions are significant. The Good Sam Tax Act (S. 37, Lugar-Leahy) provides a special deduction to all business tax payers, including farmers and ranchers, in a simplified formula and at a much higher rate of deduction - generally equal to the fair market value (FMV) of the donation - than the "special rule deduction" that corporations may now utilize when making an in-kind donation to a charitable organization.

The new tax language included under Section 104 of H.R. 7, however, maintains the current special rule deduction formula (cost + 1⁄2 the mark-up, not exceed cost) which many corporations do not now take because it is very complicated for them to calculate. While the new version of Section 104 of H.R. 7 does extend the special rule deduction to small businesses who donate food to charitable organizations, few small businesses would likely take advantage of this tax deduction, as it is quite complicated. In addition, the substituted tax provisions in H.R. 7 do not allow more than half of all farmers and ranchers (e.g., those farmers who use the cash method of accounting) who donate food to take a tax deduction.
Ironically, the substituted tax provisions in H.R. 7 actually cost more in a budget context than the more expansive version advocated by America's Second Harvest. The reason for the budgetary or "scoring" difference is that the Good Sam Tax Act that America's Second Harvest supports has a three year sunset, meaning after three years, the provisions would have to be reauthorized or would expire. The Good Sam Tax Act with the three year sunset costs (the loss in tax revenue to the Treasury) an estimated $510 million over three years, versus the $600 million over 10 years that the tax provisions substituted in H.R. 7 would cost.

The substantive differences between the Lugar-Leahy tax relief and those provisions included under Section 104 of H.R. 7 are so significant that a joint letter from America's Second Harvest, the American Farm Bureau, the National Farmer's Union, the National Cattlemen's Beef Association, the National Milk Producers Federation and the United Fresh Fruit and Vegetable Association was sent to Chairman Bill Thomas (R-CA) and other members of the Ways and Means Committee, urging the Committee to retain the Lugar-Leahy Good Sam Tax Act provisions with the three-year sunset in H.R. 7.

America's Second Harvest is now working with Senators Baucus (D-MT), Grassley (R-IA), Lugar (R-IN), and Leahy (D-VT) to maintain the Senate's support of S. 37, the Good Samaritan Hunger Relief Tax Incentive Act with the three-year sunset.

What Does H.R. Include? Visit http://www.secondharvest.org/policy/policy_update.html#TOP for the complete article.