tributions. And once they discover how good it feels to give back to the community, they are far more likely to get involved and make it a lifelong habit.

You have heard about the study conducted by PricewaterhouseCoopers for Independent Sector that showed that if President Bush's proposal to extend the charitable contribution deduction to nonitemizing taxpayers were enacted, it would increase charitable giving by as much as $14.6 billion annually.

Just think of the new services and programs these dollars could produce: more quality childcare programs, more health and wellness programs for our elderly citizens, more research and services to prevent and cure disease, more arts and culture programs to nourish and sustain our spirit, more opportunities for people to celebrate and express their religious faith. The list is endless.

The nonitemizer deduction will provide a substantial return on investment by fueling the engine of charitable giving so vital to sustaining and improving services provided by charitable organizations to our communities. The new community wealth that will be generated goes far beyond the direct contributions that nonitemizer deductions would foster.

Title I of the Community Solutions Act also includes another important incentive to increase charitable giving, and that is allowing individuals to make contributions directly to charity from their IRAS without incurring additional tax liabilities.

Due to the strong economy and the stock market increases over the last several decades, many individuals have more than sufficient funds to retire comfortably, and they would like to be able to contribute some of those funds to the causes and charitable programs they care about while they are still living.

Unfortunately, under current law, they must include those contributions in their taxable income, and the amount they contribute could be affected by other restrictions, such as the adjusted gross income (AGI) percentage limitations on contributions. So as a result, very few individuals now donate IRA funds to charity during their lifetimes.

Section 102 of Title I would remove those barriers to giving and enable many middle-income Americans to have accumulated funds in their IRAs contributed to charity while they are alive.

Congress has just passed its first major tax bill, and, unfortunately, the President's proposal to encourage increased charitable giving was not included. We strongly urge you to correct that now. Enacting the charitable deduction for taxpayers who do not itemize their deductions is the only real way for Congress to send the message that charitable giving is an important value for all Americans. This is one tax investment that will yield tremendous benefits for everyone.

Thank you.

[The prepared statement of Dr. Melendez follows:]

Statement of Sara Melendez, Ph.D., President and Chief Executive Officer, Independent Sector

Mr. Chairmen and Members of the Committee:

Thank you for the opportunity to testify on the Charitable Giving Incentives Package presented in Title I of H.R. 7, the Community Solutions Act, sponsored by Rep

resentative J.C. Watts, Representative Tony Hall, and the Speaker of the House, Representative Dennis Hastert.

I am Sara Melendez, President and CEO of Independent Sector, a coalition of more than 700 national organizations and companies representing the vast diversity of the nonprofit sector and the field of philanthropy. Our members include many of the nation's most prominent nonprofit organizations, leading foundations, and Fortune 500 corporations with strong commitments to community involvement, as well as a vast array of networks of community and faith-based organizations working to improve the quality of life throughout the nation. Our network represents millions of volunteers, donors, and people served in communities around the world. Independent Sector members work globally and locally in human services, education, religion, the arts, research, youth development, health care, advocacy, democracy, and many other areas. No other organization represents such a broad range of charitable organizations and activities.

Independent Sector strongly commends President Bush, Speaker Hastert, Representative Watts, and Representative Hall for their efforts to encourage charitable giving by all Americans. America's charitable nonprofits, both secular and faithbased organizations, are vital to our democracy and our quality of life. We depend on a strong base of charitable giving to sustain programs and services that benefit all citizens, particularly our most vulnerable individuals and families. There are two provisions outlined in Title I of H.R. 7 that would have a tremendous impact on the ability of America's charitable nonprofits to raise private funds to support the vital services they provide to communities throughout our country-the first would extend the tax deduction for charitable contributions to all taxpayers, not just the 30% who itemize deductions on their annual returns, and the second would waive the income inclusion for charitable contributions from individual retirement accounts, thus providing incentives for more individuals to make contributions while they are living rather than solely through bequests.

Our tax code has been and remains the most powerful tool available to send the message that we as Americans highly value and strongly support charitable giving. But today, that message goes out only to the 30% of taxpayers who itemize their deductions. The tens of millions of hard-working, primarily low- and middle-income Americans who claim the standard deduction do not receive any recognition or encouragement through the tax code for their charitable giving. Intended or not, the message those taxpayers receive is that their charitable contributions are not worth counting.

Tax policy should strongly encourage giving by all Americans—not just those taxpayers who itemize deductions. President Bush's proposal to extend the charitable contributions deduction to all taxpayers would provide that strong incentive and encouragement. This proposal has been set forth in Title I, Section 101, of H.R. 7, and has also been included separately in bills introduced by Representative Phil Crane (H.R. 777) and Representative Jennifer Dunn (H.R. 824). Enacting the charitable deduction for taxpayers who do not itemize their deductions is the only real way for Congress to send the message that charitable giving is an important value for all Americans.

Every year at tax time, taxpayers who itemize their deductions receive a tangible reminder that their charitable giving provides a clear tax benefit and if they continue to give-or better yet, increase the amount they contribute-they will continue to receive that tax benefit. Our most recent analysis of giving patterns using data drawn from the IRS Statistics of Income Bulletin for Spring 2000 and Independent Sector's biennial survey of Giving and Volunteering shows clearly that at every income level, taxpayers who itemize their deductions contribute significantly more to charity than those who do not itemize deductions.

Beyond its powerful symbolic importance, the non-itemizer deduction would provide a strong stimulus for increased giving and new givers. A recent report by the National Economic Consulting Division of PricewaterhouseCoopers concluded that had the non-itemizer deduction as proposed by President Bush been in effect in 2000, total charitable giving would have increased by $14.6 billion-an increase of 11.2%. Perhaps even more important, PricewaterhouseCoopers concluded that the non-itemizer deduction would have stimulated charitable gifts by 11 million Americans who would otherwise have given nothing. The long-term importance of encouraging these millions of Americans to develop the habit of giving will be invaluable to the ability of charitable nonprofits to carry out the programs and services so imperative to the continued health and vitality of communities throughout America.

There is further clear and compelling evidence that providing a non-itemizer deduction would dramatically increase charitable contributions. In 1981, Congress enacted the non-itemizer deduction on a 5-year trial basis from 1982 to 1986. The de

duction was phased in gradually and was in full effect only in 1986. Significantly, between 1985, when non-itemizers were allowed to deduct only 50% of their contributions, and 1986, when non-itemizer gifts were fully deductible, total giving by non-itemizers increased by 40%, according to IRS data. Sadly, that legislation was permitted to sunset in 1986, and there was, in fact, a significant drop in giving as reported in Giving USA the following year.

The increased charitable contributions that will result from the nonitemizer deduction will provide much needed funding to thousands of community-based and religious organizations that are addressing America's most urgent social concerns. Well over half of the contributions made by nonitemizers go to religious and human service organizations. A tax deduction for charitable contributions will provide additional funds to those non-itemizers who already give to increase their donations, and it will provide the needed incentive to new givers to make contributions to the agencies that serve their community.

We have received substantial documentation from our member organizations that the vast majority of their contributors are low- and middle-income taxpayers whose modest contributions of $10, $50 and $100 provide core support for the services they provide. If the non-itemizer deduction were enacted, many of these agencies could realize an 11% increase in charitable contributions and they would put those dollars to work in expanded and improved services. The American Heart Association has estimated that this provision would enable them to fund an additional $13.95 million in research projects that would lead to stronger prevention, treatment, and cure for heart disease and strokes.

In just one community served by The American Cancer Society, Austin, Texas, these additional dollars would mean 44 more cancer patients who do not have family or friends available to help would receive transportation to and from cancer-related treatments, more children who have or have had cancer would be able to enjoy horseback riding and swimming at Camp Discovery, and 29 more women diagnosed with breast cancer would be able to participate in the Reach to Recovery program. Multiply that by the thousands of communities where the American Cancer Society works to prevent cancer, save lives, and diminish suffering from cancer through research, education, advocacy and service.

Then multiply those results by the thousands of community and faith-based organizations across the country who are working hard to help young people find productive after-school activities that enrich their lives and enable them to gain critical life and job skills, to help older Americans participate in health and wellness programs, or to provide quality child care for working parents. It is clear that extending the tax deduction for charitable contributions to the 70% of American taxpayers who do not currently itemize deductions-84 million Americans-would produce significant benefits to our communities far beyond the direct benefits to taxpayers themselves.

The second provision in Title I of H.R. 7, while impacting a smaller number of taxpayers directly, would remove a significant tax barrier that discourages people from giving back to the community from their accumulated retirement earnings in Individual Retirement Accounts (IRAs). Due to the strong economy and the stock market boom over the last several decades, many individuals have more than sufficient funds to retire comfortably, and they would often like to make contributions to their favorite charitable nonprofit organization while they are still living rather than through their estate. Under current law, those individuals must include any withdrawals from their IRA in their taxable income which may then be offset in part by a charitable deduction. In addition, the size of the deductible portion of their charitable gift would be limited by such restrictions as the percentage of Adjusted Gross Income (AGI) limitation on charitable deductions and the 3% floor on all itemized deductions. As a result, very few individuals donate IRA funds to charity during their lifetimes.

Section 102 of Title I in the Community Solutions Act (H.R. 7) would remove the tax barriers to such donations by allowing a donor who had reached age 592 to exclude any IRA funds withdrawn and transferred to a charity from his or her income when filing a tax return for that year. The donor would be eligible to claim a charitable deduction only to the extent that the IRA was funded with after-tax dollars. This proposal is widely supported in the nonprofit sector, and would, if enacted, unlock substantial new resources for the support of charitable organizations and their public-service missions. Although charitable organizations frequently receive inquiries from potential donors about giving regular IRA funds during their lifetimes, when donors realize that they may have to pay a significant amount of tax to make the contribution, these types of gifts rarely get made.

These two provisions in Title I of H.R. 7 are good public policy. They would unlock substantial new resources for the support of charitable organizations and their pub

lic-service missions. Research conducted by Independent Sector and others has shown conclusively that while the decision whether to give is not fundamentally affected by tax policy, the decision about how much to give, how to give, and when to give, is.

The work of our secular and faith-based charitable nonprofits is integral to strengthening communities throughout our country and addressing the pressing issues and concerns they face today. The non-itemizer charitable deduction will provide significant help in recognizing and encouraging charitable giving by all Americans to support these important efforts. Moreover, it will provide the needed incentive to spur more Americans to get involved in community-based organizations and begin a life-long habit of making charitable contributions.

Similarly the provision to allow tax-free distributions from individual retirement accounts for charitable purposes would enable the many middle-income Americans who have accumulated funds in their IRAs that now exceed their needs and expectations to contribute some of those funds to charity without incurring detrimental tax consequences.

Congress has just passed its major tax bill without including this major component of President Bush's initiative. The non-itemizer deduction would bring significant new resources to the thousands of community and faith-based organizations throughout the country that are on the front lines of serving our most vulnerable people. We have heard how other tax breaks will bring a strong return on our tax investment through economic growth. The non-itemizer deduction will result in an equally important or perhaps even more important-return on investment by creating a new stream of community wealth that will help to feed the hungry, provide job training and skills for those entering the work force, care for our children and those who are suffering from illness, and nourish the health and spirits of all our citizens. The return on our investment will be much greater than the direct contributions this proposal will foster or the additional tax relief it will provide for the primarily low- and middle-income taxpayers who do not itemize deductions.

Independent Sector will continue to work for the President's initiative to increase charitable giving and we expect to see passage of the non-itemizer contribution in this session of Congress. We therefore strongly urge your support for Title I of H.R. 7. I would be pleased to answer any questions that you may have.

Independent Sector

A Charitable Tax Deduction for Nonitemizers Should Be Enacted by

Congress

Since Congress permitted the charitable tax deduction for nonitemizers to sunset in 1986, seven of ten taxpayers, the nonitemizers, can no longer deduct their charitable contributions and the resulting loss in charitable giving has been substantial. This becomes obvious when a comparison is made of the amount contributed by itemizers and nonitemizers who are in the same income groups.

The average annual amount contributed per tax return for itemizers is $2708; the average for nonitemizers is $328.

Eighty-seven million tax filers are nonitemizers. It is clear that if all nonitemizers raised their contributions to the amount given by itemizers, giving would increase

$2,357

$1,333

2.7%

- 1.6%

$3,466

$1,254

2.6%

1.0%

$7,694

$2,934

2.7%

1.0%

$19,651

$6,876

2.9%

1.0%

$140,972

$21,015

4.7%

1.0%

greatly. In fact, charitable contributions by nonitemizers increased by 40% or $4 billion from 1985 to 1986, according to Internal Revenue Service data. Nonitemizers were permitted to deduct only 50% of their charitable contributions and they gave $9.5 billion that year. In 1986, they could deduct a full 100% and, according to the IRS, they gave $13.4 billion-an increase of 40%. The message from that experience is apparent. Charitable tax deductions do stimulate substantially increased giving from middle income Americans.

Nonitemizers are low to middle income American households (70 million have incomes under $30,000 a year) who support services such as the Red Cross and the American Cancer Society. They give to churches and synagogues, environmental organizations, schools, colleges, hospitals, food programs for the homeless, and the Boy Scouts and Girl Scouts. They give to advocacy organizations, health research, the arts, international development, and myriad activities in the public interest that enrich our society and protect its people. Congress should enact a legislation that will permit these moderate income Americans to take a deduction for their contributions to charity.

Source: Data prepared for The New Nonprofit Almanac and Desk Reference by Independent Sector (Jossey-Bass, 2001) using data from the IRS Statistics of Income Bulletin, Spring 2000.

Chairman MCCRERY. Thank you, Dr. Melendez. Diana Aviv? I am sorry. Mr. Boshara was next. Mr. Boshara, please proceed. STATEMENT OF RAY BOSHARA, POLICY DIRECTOR, CORPORATION FOR ENTERPRISE DEVELOPMENT Mr. BOSHARA. Mr. Chairman, members of the Subcommittees, thank you very much for the opportunity to be here today.

I also want to express my gratitude to Congressman Watts and to Congressman Tony Hall.

Tony Hall is my former boss, and I commend Tony for bringing individual development accounts (IDAs) to the attention of Congress 10 years ago when he was the chairman of the House Select Committee on Hunger.

I also want to thank the many members of the Ways and Means Committee who have supported IDAS and asset building. Thirtyfive House members joined Congressmen Pitts and Stenholm yesterday in introducing H.R. 2160, the Savings for Working Families Act of 2001, which is Title III of H.R. 7.

I also want to thank Speaker Hastert for his support of IDAS and finally, President Bush for including an IDA tax credit in his budget this year.

I would like to start with just a couple of stories. Monica Grant of Shreveport, Louisiana, was homeless and on drugs. Mary Hasino of Yreka, California, described her life as a financial mess. Debra Howell of Albany, New York, was living paycheck to paycheck and had no provision for her future. And Mike and Dawn Ferrill of Tulsa, Oklahoma, couldn't even afford to buy shoes for their kids.

All of these people were working hard and getting by, but they were never getting ahead. They owed, but they never owned. They were spectators to a spectacular economy, but they were never players in that economy.

Thanks to individual development accounts, or IDAs, they are now homeowners, small-businessowners, pursuing postsecondary education, saving for their retirement, and opening savings accounts for their kids. They are five of 10,000 people across the United States who are saving in an IDA.