The Republican leadership on Wednesday September 27, 2017 released a framework for proposed tax reforms for consideration by Congress. While the framework proposes retaining the income tax charitable deduction, it also proposes nearly doubling the standard deduction. Reducing the number of itemizers arguably reduces charitable contributions without the incentive of itemized charitable gifts. Nonetheless, giving is motivated by more than just tax incentives. It remains to be seen how decreasing the number of itemizers might affect charitable giving.
Under current law, taxable income is subject to seven tax brackets ranging from 10% to 39.6% depending a taxpayer’s income. In an effort to reduce the complexity of the tax code, the framework would compress individual taxation to three brackets of 12%, 25% and 35%. The framework hedges on the top tax rate. It says a higher rate may apply to the highest-income taxpayers to ensure the code is not shifting the tax burden from high income taxpayers to lower and middle income taxpayers.
The framework also proposes elimination of the estate tax and generation skipping tax, but is silent on the gift tax. The estate tax was effectively eliminated for over 99% of Americans with the passage of The American Taxpayer Relief Act (ATRA) on January 1, 2013. ATRA set the estate tax exemption amount at $5M with automatic portability for married couples. The exemption is indexed and is $5,490,000 in 2017. Therefore, only couples with assets in excess of nearly $11M are potentially subject to estate tax.
It is too early to predict or estimate the impact of the framework on taxes and charitable giving. We will keep our clients apprised of developments affecting the tax impact of planned giving.
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