After Sen. Rick Santorum (R-PA) agreed to drop the “equal treatment” portion of the Charity Aid Recovery and Empowerment (CARE) Act aimed at making it easier for religious organizations to get government grants, the path was cleared for the remainder of the bill (S. 476) to proceed to the Senate floor. S. 476 deals primarily with tax incentives for charitable giving and nonprofit accountability issues and was approved by the Finance Committee in February. However, controversy over the faith-based version sponsored by Santorum and Sen. Joe Lieberman (D-CT) was holding up the bill. After Santorum’s announcement, work began on a “unanimous consent” agreement, which will govern the number and type of amendments offered and set terms of the floor debate. One issue that could have blocked progress was raised by Sen. Jack Reed (D-RI), who sought assurance that the controversial faith-based provisions would not be put back into the bill in a conference with the House. Reed received this assurance from Senate Majority Leader Bill Frist (R-TN) before the unanimous consent rule was voted on. One issue that could block progress on the bill remains -- the fate of the Compassion Capital Fund (CCF), which was not included in the Senate Finance Committee’s version of the bill. Reed questioned whether the CCF, a non-tax related provision, is appropriate for the Finance Committee to add to its “manager’s amendment.” Reed expressed hope that Santorum would agree to leave the CCF out of the bill, saying he had not had the opportunity to review it and would reserve his right to object to the unanimous consent if he finds problems. The CCF provision remains in the manager's amendment, and it is unknown whether Reed will object when the floor debate begins. The unanimous consent agreement limits debate on the bill to four hours, with another 30 minutes of debate on two amendments: the Finance Committee’s manager’s amendment and a proposal from Sen. Don Nickles (R-OK) relating to capital gains tax relief. The debate is expected to take place on Tuesday, with a vote following on Wednesday. S. 476 contains tax incentives for charitable giving, including

• The nonitemizer charitable deduction for amounts over $250 for individuals ($500 for couples), but not exceeding $500 ($1,000 for couples). It is only effective tax years 2003 through 2005. The Secretary of the Treasury is required to conduct a study to determine if it increases giving and to compare taxpayer compliance between itemizer and nonitemizers. The report must be submitted to Congress by the end of 2004;
• Tax-free contributions made from rollover of Individual Retirement Accounts by taxpayers age 70 ½ and over, or by taxpayers age 59 ½ for contributions to split-interest entities (i.e. a charitable remainder trust);
• Improved oversight of charitable organizations;
• Simplification of the rules for charity lobbying;
• Restoration of funds for Title XX of the Social Services Block Grant; and
• Creation of a savings program for low income households.

The cost of the tax incentives is paid for through elimination of corporate tax shelters. The most costly incentive, the nonitemizer deduction, will only be available for two years, and the Treasury Department will be required to conduct a study of its effectiveness before it is re-considered. The agreement to proceed with the CARE Act does not mean the faith-based issues will not be considered by Congress. Santorum said he intends to re-introduce his “equal treatment” provisions in reauthorization of the welfare reform law later this year, and similar provisions are already appearing in reauthorization and appropriations bills in the House. See related story. Even passage of the CARE Act by the Senate does not insure that the provisions will become law. The House must agree to the Senate language. While House Republican leaders have agreed to drop the faith-based provisions, House Ways and Means Committee Chair Bill Thomas (R-CA) is believed to be somewhat lukewarm to the charitable tax provisions. Some have even speculated that Thomas is waiting for the White House to indicate that the charitable giving provisions are a high priority. This would allow for some horse-trading, giving Thomas some leverage to secure items he considers high-priority. It is less than clear, however, whether the White House will tell Thomas the provisions are a high priority. Some White House advisors feel the charitable tax provisions are very important; others feel that dropping the faith-based provisions has lessened the importance of the bill – the faith-based provisions catered to an important political audience of the White House. Last year OMB Watch opposed a long-term nonitemizer deduction because of its cost. Studies by the Congressional Budget Office and Congressional Research Service found it would be unlikely to increase giving by more than 4%, limiting its benefits. An OMB Watch letter to the Senate supporting passage of the modified CARE Act was sent last week, stating "We remain concerned about this tax break [nonitemizer], but given the provision is limited to two years and a study of its costs and impacts is required before it can be renewed, we believe the overall bill should move forward. We will continue to closely watch implementation of the non-itemizer deduction and look forward to reviewing the results of the required study to see if its benefits outweigh its costs."