WASHINGTON — On Feb. 12, 2015, the Fighting Hunger Incentive Act passed in the House of Representatives by a vote of 279-137: 240 Republicans and 39 Democrats voted “Yea;” 136 Democrats and one Republican voted “Nay;” three Republicans and 13 Democrats abstained.
“Fighting hunger is a bipartisan issue,” said Rep. Tom Reed II (R-NY), the bill’s sponsor. “We unite as Americans when our fellow citizens are suffering.”
According to Rep. Reed, the Fighting Hunger Incentive Act aims to put food “on the table of the people [who]need it most.” That is, the bill seeks to increase the number of food donations by revising sections of the Internal Revenue Act of 1986, primarily Section 170, which deals with charity-related tax deductions.
The bill would “make permanent the tax deduction for charitable contributions of food inventory,” according to the bill’s CRS summary. Without this revision, the tax deduction would have expired after December 31, 2013.
Primarily, the revisions attempt to encourage more donations by increasing the value of deductions concerning food-related “charitable contributions.” For example, the bill raises the limitation of these deductions from 10 percent to 15 percent of “the taxpayer’s aggregate net income for [any]taxable year.” Thus, if taxpayers provide more food donations, they will be able to deduct more from their taxes.
The phrase “taxable year” provides a particularly strong incentive. In the “Carryover” clause, the bill will add to Section 170(e)(3)(c); if the deductions taxpayers make exceeds the 15-percent limit, taxpayers will be able to carry over the remaining deductions into “each of the five succeeding taxable years.” In other words, “five succeeding taxable years” may not mean “five calendars years” (e.g. 2016 to 2021). Theoretically, the year could be 2025, and some taxpayers may still have deductions to carry over because they were not taxed during some of the years between 2016 and 2025.
In the case of “corporate farmers and ranchers” and “native corporations,” the deductions will carried over into “each of the 15 succeeding taxable years.”
Carryover will likely occur because of how the bill seeks to quantify the deductions. The bill will allow taxpayers to value donations of “apparently wholesome food” at “25 percent of the fair market value of such food.” To calculate the fair market value, taxpayers can use the price they sold the food item for “at the time of contribution.” The food in question does not necessarily even have to be the same general food item. Taxpayers can use food items that are “substantially the same (as to both type and quality).”
With that much flexibility in calculating the price, taxpayers are incentivized to take advantage of high prices to ensure that there will be significant and long-lasting carryovers.
Because of these incentives, it is feared that the Fighting Hunger Incentive Act may simply be exploiting hunger, both at home and abroad, to give a tax cut to larger corporations. Joel Berg, executive director of the New York City Coalition Against Hunger, claims that the bill does not “carefully separate the farmers who would be able to give away more food from big corporations that are just going to get another tax break.”
The bill’s own language may lend some credence to Berg’s claim. When it comes to carryover deductions for “corporate farmers,” the term “corporate farmers” is more inclusive than it initially lets on. Once readers connect all the definitions needed to decipher the definition for “corporate farmers,” the term “corporate farmers” ends up meaning a corporation “whose gross income from the trade or business of farming … is greater than 50 percent of the [corporation’s] gross income for the taxable year.” By setting such a low bar to meet, the bill does not significantly differentiate between small-time farms who need a little incentive to donate more and large agricultural corporations looking for another tax break.
The bill does nothing to reassure Berg when it ensures tax deductions for “corporate farmers and ranchers” will carry over into “15 succeeding taxable years (emphasis added)” instead of “15 succeeding years.”
Aside from providing another tax cut, the bill may also end up adding to the deficit. The Joint Committee on Taxation has determined that the bill “would result in revenue losses in each year beginning in 2014,” resulting in $1.9 billion being added to the deficit by 2024. In 2015 alone, the bill would cause $205 million in revenue to be lost.
Because the bill will likely add to the deficit, President Barack Obama has threatened to veto the bill. House Majority Leader Kevin McCarthy (R-CA) is confident the bill will pass because 39 Democrats decided to support the bill, President Obama would be compelled to sign it into law. However, the bill still has to clear the Senate before it even reaches the President’s desk.
Whether or not the Fighting Hunger Incentive Act ultimately avoids President Obama’s veto, the bill shines light on problems that has constantly vexed philanthropic efforts. What extent should philanthropic efforts appeal to donors’ self-interest? By appealing to self-interest, at what point does the donors’ self-interest eclipse the needs of the people philanthropic efforts are trying to address?
The debate rages on.
– Dean Delasalas