Universities Could Reap Charitable Windfall If IRA Rules Change
July 7, 2008 - 8:19 PM
Chicago (CNSNews.com) - America's colleges and universities could see their endowments soar if wealthy retirees are given more flexibility to make charitable contributions to their alma maters, according to Bryce Dustman, an aide to U.S. Rep. Phil Crane (R-Ill.).
Crane is the sponsor of a bill that would do just that. It is expected to be debated Wednesday at a full hearing of the House Ways and Means Committee, along with aspects of President George W. Bush's tax-cut proposal.
Dustman said Crane recently had a conversation with the president of Northwestern University and other academics, during which Crane was told that many middle-class individuals, at retirement age, want to donate funds from their Individual Retirement Accounts to their alma maters, but are unable to do so without incurring a huge tax bill on the funds removed from their retirement accounts.
Crane's bill, the IRA Charitable Rollover Incentive Act of 2001, would eliminate that penalty for charitable individuals who dip into their IRAs to donate to a worthy cause, Dustman said. The bill could impact 85 million Americans, and produce an additional $160 billion in charitable giving over the next decade if enacted, according to a report prepared by Price Waterhouse Coopers, the Chicago-based consultancy.
The legislation would allow individuals aged 59 1/2 or older to transfer amounts currently held in IRAs directly to charities -- whether they be churches, colleges, universities or social organizations -- without having to first recognize the income for tax purposes and then taking a charitable deduction.
"The IRA was intended to encourage individuals to save for retirement, but due to the strong economy in recent years and the general increase in asset values, many individuals have more than sufficient funds to retire comfortably," said Crane, who is vice-chairman of the House's tax writing panel, the Ways and Means Committee.
"We have an excellent opportunity to advance sound tax policy and sound social policy by returning to our nation's historical emphasis on private activities and personal involvement in the well-being of our communities," Crane said.
"Charity benefits both the giver and the receiver in like proportions. The act of giving elevates the heart of the giver. The act of receiving elevates the condition of the recipient. Charity is thus a blessed act that should suffer no discouragement from something so mean as the tax code," Crane added.
In 1999, Crane introduced a similar bill, which was approved by the House and Senate, but vetoed by then-President Bill Clinton, one of several tax-relief bills Clinton scrapped.
"This is just plain good public policy. It encourages private-sector solutions to social problems -- without raising taxes," said Curt D. Mercadante, the Associate Director of Public Policy Caucuses of America. "The government doesn't need to be the end-all, be-all provider of cures to all social ills. Congressman Crane's legislation encourages this invaluable ideal,"
Academics who work closely with philanthropists say the current laws on charitable giving provide a "disincentive" to philanthropy.
"A disincentive is the current inability to roll over an IRA into a charitable gift arrangement such as a charitable gift annuity or charitable trust without first realizing the distribution from the IRA as income and paying tax on it," said Ron Huiatt, vice president for institutional advancement at Mountain State University.
"This keeps many potential donors from giving their IRAs -- which they may not need for living expenses -- directly to a charity. These potential donors may not want to incur the income tax and possibly early distribution penalties that would be due on such a contribution," Huiatt said.
The non-profit group, Independent Sector, whose 700 members include the American Red Cross, United Jewish Communities and the Presbyterian Church USA, supports the bill, and urged President Bush to sign it if it passes Congress.
"If these changes become law," says Huiatt, "it will enhance the ability of charities to receive more private support. I would anticipate that gifts which now total approximately $1 million annually would increase by 20-25 percent."
There is no Senate companion yet to the House bill introduced by Crane.