On September 17, the House passed a bill that provides tax benefits to increase charitable contributions. The bill, the Charitable Giving Act of 2003 (H.R. 7), was approved by a vote of 408-13. It also provides money for a Compassion Capital Fund, simplifies charity lobbying rules, allows states to transfer money from welfare to social services, and modifies various rules affecting foundations. It is expected to go to conference with the Senate quickly. The Senate passed a similar bill, the Charity Aid Recovery and Empowerment Act (CARE Act) (S. 476), in the spring. Many of the provisions in the House bill are similar to the Senate's version. For example, both call for a temporary tax deduction for charitable donations made by those who do not itemize. Both bills allow non-itemizers to deduct up to $250 after the first $250 is donated without the tax break. Both bills also allow elderly people to rollover money from their Individual Retirement Accounts to charities without tax consequences, although there are differences, such as age eligibility, that still need to be resolved. And both bills dropped provisions pushing Bush's faith-based, charitable choice plan. Both the House and Senate bill passed a provision that simplifies the lobbying rules for charities. Not considered controversial, the provision eliminates the distinction between direct and grassroots lobbying, doing away with the need for complicated cost allocation and record keeping. It does not change the overall limits on charity lobbying. However, the effective date in the House bill would be January 1, 2004, while the Senate bill would take effect on January 1, 2003. Parts of the House bill are significantly different from the Senate's version. For example, the Senate bill "pays" for the cost of its bill ($12.3 billion over 10 years) through elimination of corporate tax shelters; the House bill does not have any offsets. The House bill will cost $12.6 billion over 10 years, which will either be added to the deficit or force spending cuts to make up for the lost revenue. The Senate bill restores funding for the Social Service Block Grant, and the House bill does not. The Senate included $2.35 billion for FY 03 and $1.3 billion for FY 04 for SSBG. This was a key reason some groups supported the bill. But the president indicated he no longer supported the increased funding for SSBG after the Senate dropped the charitable choice provisions from its bill. Both bills allow 10 percent of funds appropriated under the Temporary Assistance for Needy Families to be transferred to the Social Service Block Grant. The House bill also has two provisions affecting foundations that are not in the Senate bill. These might cause controversy in a House-Senate conference. The first provision changes an excise tax foundations pay on net investment income to a flat 1 percent from a rolling percentage that can go as high as 2 percent. The second provision was a backdoor attempt to alter foundation "payout" requirements. Foundations are required to "pay" 5 percent of their assets in grants each year. The House bill initially disqualified all administrative costs -- rent, salaries to employees, etc. -- to be counted toward the calculation of the 5 percent payout. This effectively raised the payout for foundations. However, the provision was altered at the last second after a vigorous lobby effort by foundations. The new "payout" provision disqualifies only certain expenses towards satisfying the 5 percent payout. These include fees in excess of $100,000 per year to any "disqualified" person. By law, this includes such people as foundation trustees and those with substantial powers or financial interests in the foundation. Additionally the bill only allows expenses "directly attributable to direct charitable activities, grant selection, grant monitoring and administration activities, compliance with applicable Federal, State or local law, or furthering public accountability of the private foundation" to be counted towards the 5 percent payout. Finally, the bill only permits the cost of coach airfare to be counted towards the 5 percent payout. The administration has expressed concern about some provisions in the bill, particularly one that would allow tax deductions for contributions to fraternities and sororities. For more background on these issues see the Charitable Giving page on our website and our newsletter, the OMB Watcher, next week.