NEWS SOURCES | ARCHIVES OF PAST MONTHS

CARE Act Update

The CARE Act is well positioned for action early in 2004. Work on the charitable legislation bogged down earlier when Senator Daschle (D-SD) opposed a motion to send the bill to conference, citing concerns about being shut out of conference committee negotiations. Daschle's main complaint appears to be Senator Santorum's (R-PA) plan to cut the $10 billion Social Service Block Grant (SSBG) provision by half. Nevertheless, the CARE Act continues to enjoy wide bi-partisan support with leaders on both sides expressing the hope that the legislation will become law. Senators Daschle and Clinton (D-NY) have been actively seeking a pre-conference agreement with Republicans that would move the legislation to conference.
Taken From National Committee on Planned Giving

RELATED ARTICLE - Year End Review

No one said it would be easy? What began in March as a bipartisan effort in the Senate to pass a stripped-down version of the Bush administration's faith-based initiative had, by May, turned into a contentious debate over administrative costs and calculation of the payout rate for foundations and had, by year's end, after both the Senate and House passed versions of the bill, stalled altogether.

The saga opened with Sen. Rick Santorum (R-PA), the leading champion in the Senate of the administration's faith-based initiative, agreeing in March to drop its most controversial provisions in order to secure approval of a package of charitable giving incentives. The resulting bill, the CARE Act of 2003 (S. 476), was passed by the Senate in April by a vote of 95 to 5. In short order, Reps. Roy Blunt (R-MO) and Harold Ford (D-TN) introduced a House version of the bill, H.R. 7, that matched the Senate version in most respects.

Almost immediately, the bills became the target of legislators in both the Senate and House who, disturbed by press accounts of excessive executive compensation at a handful of private foundations, began to argue for the elimination of salaries, travel expenses, and administrative expenses from the foundation payout calculation.

In late May a group of major private foundations hired Bill Paxon, a former Republican congressman from New York and a lobbyist with the firm of Akin, Gump, Strauss, Hauer & Feld, to represent their case on the Hill, and the debate continued through Congress' adjournment in August. In mid-September the House, by a vote of 408 to 13, passed its bill, which, among other things, allows non-itemizers to deduct up to $250 in charitable contributions over two years, allows individuals who are at least 70 1/2 to make direct or deferred gifts to charity from their IRA accounts without adverse tax consequences, and maintains the foundation payout rate at 5 percent but excludes some administrative expenses from the calculation (including salaries over $100,000 and first-class airfare).

But needing a "unanimous consent" agreement to advance the Senate bill to conference, Senate Democrats balked, citing their exclusion by the Republican leadership from active conference negotiations, and the legislation remained in limbo at year's end.
Taken From Philanthropy News Digest

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Tax-Free Savings Accounts in 2004?

A conference in Washington on December 17, 2003 was held to discuss the proposed tax-free savings plans of the Bush administration. In January of 2003 President Bush and his administration submitted a major new tax-free savings plan proposal to Congress. The proposal included two new types of tax-free savings accounts. It now is likely that the 2004 Bush budget will propose approval of both accounts.

Retirement Savings Account (RSA) The retirement savings account (RSAs) would replace both Roth and tradition IRAs. Those with existing IRAs could retain them or pay the income tax on the IRA and convert it to an RSA. The RSA could receive $7,500 in funding per year. It would be similar to the current Roth IRA. Funds within the RSA would grow tax-free and withdrawals would be tax-free. The RSA would act to reduce greatly the tax on investments in the future.

Lifetime Savings Account (LSA) A second type of account would be named the lifetime savings account (LSA). The LSA also could be funded with $7,500 per year. The accounts would grow tax-free and distributions would be tax-free. The principal benefit of the LSA is that there would be no restrictions on withdrawals. The funds could grow tax-free and then be withdrawn for any purpose. For example, grandparents could save funds in their LSA and then use those funds to assist grandchildren with college education.

The RSA and LSA agreements are creating a major political contest between banks and financial service companies. If the RSA and LSA pass, it may make commercial annuities less attractive and sale of stocks and bonds more attractive. The banks and commercial organizations are interested in moving more widely into the sale of stocks, bonds and other securities.

For individuals with existing IRAs, there could be a significant cost to the transfer. When an existing IRA is converted to an RSA, the tax at ordinary income rates would be due and payable.

Reduced or No Current Cost To Washington From the standpoint of Congress, for the RSA and LSA, the low cost now is a desirable feature of the plan. The cost of the plan over the first decade will be very modest. The Treasury Department suggests that there may even be a small net gain in tax revenue over the first decade, since the lost tax on income would be offset by additional tax on the conversions. However, the concern is that the future costs may be very large, since there would be greatly reduced future tax revenue on investment returns.
From GiftLaw