In 1917, to finance the last push to end WWI, the U.S. Congress increased the federal income tax by passing the War Revenue Act of 1917. This legislation also introduced the charitable deduction to the American tax system.
Knowing that people tend to give to charitable interests from their discretionary income (which remains true today), Congress needed to avoid heavily taxing funds that would otherwise be donated to charity. Without the charitable deduction, the tax increase could have cut into charitable donations if donors had to pay higher taxes on funds before donating them, and the government may have found itself needing more public funds to support the work charities had been doing.
The charitable deduction has evolved over the last century, and continued tax reform can be expected in the coming year. Even so, most experts do not anticipate a complete elimination of the charitable deduction anytime soon. The charitable deduction thus remains a vital component of our nation’s efforts to encourage charitable giving, just as Congress intended back in 1917. ■