[Congressional Record Volume 147, Number 54 (Thursday, April 26, 2001)]
[Senate]
[Pages S3996-S3998]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. INHOFE:
  S. 780. A bill to amend the Internal Revenue Code of 1986 to allow 
individuals who do not itemize their deductions a deduction for a 
portion of their charitable contributions, and for other purposes; to 
the Committee on Finance.
  Mr. INHOFE. Mr. President, I rise today to introduce legislation that

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would create a new era in charitable giving across America. My bill, 
the Neighbor to Neighbor Act, includes provisions that would allow tax-
free distribution of IRA accounts for charitable purposes, and give 
nonitemizers the same deduction that itemizers enjoy. It would also 
allow the deduction for charitable gifts of long-term capital gain 
property to be subject to an annual limit of 50 percent of adjusted 
gross income instead of the current 30 percent limitation. It would 
increase the carryover period for charitable deductions from five years 
to ten years; and it would exclude a charitable deduction from the 
three percent reduction rule. My bill would allow a taxpayer to deduct 
charitable contributions up until April 15th, and finally, the Neighbor 
to Neighbor Act would repeal the current two percent excise tax on 
private foundations.
  My bill would greatly simplify one of the most complex provisions in 
the tax code. The tax code should reward the generosity of good-hearted 
Americans, it should not penalize those who choose to give to those in 
need.
  IRA account owners would be permitted to make distributions from 
their IRAs directly to charities, either outright, or in exchange for a 
charitable gift annuity, a charitable reminder trust, or pooled income 
fund in the Neighbor to Neighbor Act. According to the Employer Benefit 
Research Institute, there are currently more than one trillion dollars 
in IRA accounts and five trillion dollars in defined contribution 
accounts, which can be rolled into IRA accounts.
  I have numerous examples, totaling hundreds of millions of dollars, 
from people who have wanted to donate their excess IRA assets to 
charity, but were unable to because of the current tax penalties For 
example, the ability to rollover an IRA to charity would mean literally 
millions of dollars for Boston College. Syracuse University lost a 1.5 
million-dollar gift because the donor could not rollover his IRA into a 
charitable remainder trust.
  A 71-year-old male donor with a 1.3 million IRA wanted to make a life 
income gift to a major public university in Texas. He wanted to receive 
annual income payments that would help ensure the care of his wife, who 
is in the early stages of Alzheimer's. Given the tax consequences of 
such a gift under current law, the donor has not been able to make the 
charitable contribution.
  The husband of a hospital volunteer at a medical center in Tennessee 
would like to establish a charitable trust to benefit cancer research 
in honor of his last wife. He wants to use retirement plan assets of 
1.8 million to establish this cancer research fund, to provide himself 
with annual payments for retirement income, and to reduce the tax 
burden on his heirs, would be greater for IRA assets than other 
appreciated securities. He has been advised against such a gift because 
of tax disincentives under current law.
  These are just a few examples of how the current law levies 
significant taxes and presents serious disincentives to charitable 
gifts of these assets. Under current, law, any IRA withdrawal is fully 
taxable as ordinary income in the year in which it occurs. A donor who 
withdraws IRA assets in order to make a charitable gift is subject to 
tax on the entire amount withdrawn. Under very best of circumstances, 
this amount might be offset by a charitable deduction, but even then 
there are significant limitations.
  My bill, which allows the tax-free distribution of individual IRA 
accounts for charitable purposes, is good public policy. Although IRA 
assets were originally intended as a supplement to retirement income, 
withdrawal is now allowed, under certain circumstances, to assist in 
financing a home or a college education. It is equally appropriate for 
public policy to allow financially successful individuals, who have 
reached a point where IRA and other tax-deferred retirement assets are 
not needed for retirement, to use those assets, not for personal 
benefit, but to support charities that better the lives of others.
  The Neighbor to Neighbor Act would also allow donors who make 
charitable contributions, but do not itemize their federal income tax 
deductions, to be entitled to a ``direct'' charitable contribution 
deduction. Since three out of four taxpayers do not itemize, the 
charitable deduction is not available to most taxpayers. A report by 
Price Waterhouse Coopers estimates that the deduction for nonitemizers 
would translate into 11 million more donors, and could increase giving 
by as much as 14.6 billion dollars in one year.
  The deduction also does not provide an equal treatment for all 
donors, and it encourages fundraising efforts to focus on a small group 
of potential donors. By expanding the charitable contribution deduction 
for nonitemizers, the playing field would be level for all donors, and 
would lessen the role of government and the political process in 
charitable giving.
  People should not face disincentives that burden charitable giving. 
My bill would allow the deduction for gifts of long-term capital gain 
property to public charities to be subject to an annual limit of 50 
percent of adjusted gross income instead of the current 30 percent 
limitation. In addition, the carryover period for charitable deductions 
that cannot be fully used in a given tax year, due to the applicable 
percentage limitation, would be increased from the current five year to 
10 years.
  The current percentage limitations on the deductibility of charitable 
contributions of long-term capital gain property to public charities, 
coupled with the reduction in the tax rates applicable to realized, 
long-term capital gains, are having a chilling effect on immediate 
charitable giving, the former reduces the incentive to make relatively 
large gifts of capital assets in the current year if the donor's 
contribution base is relatively small, compared to the value of the 
gift that could be made.

  For example, just since last June, at Embry-Riddle Aeronautical 
University, four individuals have indicated an interest in giving 
amounts ranging from one to three million dollars. These individuals 
have not yet given because of the tax disincentives of the 30 percent 
rule; they can only deduct charitable contributions up to 30 percent of 
their adjusted gross income.
  By increasing the income tax charitable deduction reduction 
percentage for contributions of long-term capital gain property to 
public charities from 30 percent to 50 percent of the donor's 
contribution base, gifts of highly-appreciated assets will be put on 
par with gifts of cash, and the tax law will again boost private 
philanthropy in America.
  The Neighbor to Neighbor Act would also allow a taxpayer to deduct, 
for the current year, charitable contributions made up to the time for 
filing the taxpayer's federal income tax return for that tax year. 
Currently, taxpayers may contribute to their IRAs up until April 15th 
and still receive a deduction. Charitable donations should have the 
same tax treatment.
  Finally, this bill would repeal the excise tax imposed on the 
investment income of private foundations. Private foundations are 
section 501(c)(3) charities that fund the work of a full range of 
charitable activities across the country. They are often founded by 
individuals or families, and their income stream comes primarily, if 
not entirely, from earnings on their investments.
  Repeal of the excise tax would have the effect of increasing 
charitable contributions by hundreds of millions of dollars every year. 
This is because private foundations are required, annually, to pay out 
five percent of their assets in charitable distributions, and since the 
excise tax counts as a credit toward the distribution requirement, 
repeal would require an increase in charitable distributions by an 
equal amount.
  The excise tax was originally enacted in 1969 as an ``audit fee,'' 
intended to offset the cost of IRS oversight of private foundations. 
But today, the tax collects far more than the IRS needs to conduct 
audits. In 1999, the excise tax produced 500 million dollars in 
revenue. And this year, the budget of all exempt-organization 
activities at the IRS is only 59 million dollars. Moreover, audits of 
private foundations fell from 1,200 in 1990 to 191 in 1999. This 
``audit fee'' is not being used for its intended purpose.
  The wayward use of these revenues is a good reason to repeal the tax, 
but not as important as the work we increasingly call on charities to 
perform. With the focus of the President and the Congress on charitable 
giving, I believe passage of the Neighbor to Neighbor Act would be one 
of the most effective steps we could take.

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  If we hope that charities will join state and federal government 
efforts to provide services for disadvantaged people and otherwise 
address important societal needs, then Congress should enhance the tax 
incentives that encourage voluntary philanthropy. Private foundations, 
like public charities, are publicly supported to the extent that they 
receive tax preferences. The provisions of the Neighbor to Neighbor Act 
are reasonable, efficient steps that will help charities address our 
common challenges; challenges we increasingly call on individuals and 
the private sector to take.
  In an article for The Journal of Gift Planning, President Bush 
stated, ``I believe that the government's highest calling is often 
simply to do no harm--to instead be an enabler, a catalyst that creates 
a climate that allows America's nonprofits to flourish. A government 
that serves those who are serving their brothers and sisters. A 
government that rallies the armies of compassion to heal our nation's 
ills, one heart and one act of kindness at a time.'' I believe that the 
Neighbor to Neighbor Act does just that, and I urge my colleagues to 
join me in support of this legislation.
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