SSRN: Cowan & Cutler Post “Cold-Blooded Corporate Charity: Policy Pitfalls of the Big Beautiful Floor”

Mark Cowan (Bosie State) and Joshua Cutler (Boise State) have posted a paper on the OBBBA’s one percent floor on corporate charitable deductions. You can read a draft on SSRN. From the abstract:

“For ninety years, the federal tax law stayed neutral in the fraught debate over whether a business corporation wishing to advance societal goals should do so through their operations or through gifts to charity. But now, a seemingly innocuous provision in the One Big Beautiful Bill Act (OBBBA) has significantly altered the playing field by creating a new one percent floor on corporate charitable deductions. This floor eliminates the majority of the deductions that corporations currently claim, incentivizing them to decrease gifts to charity and to pursue societal good through their business operations instead, if at all. The purpose of this article is to show how Congress has effectively taken sides in debates over corporate purpose and strategy, needlessly creating tax and public policy problems. We review the long debate over corporate purpose, survey how corporations have historically sought to improve society through their operations or through charitable giving, and review the history of litigation over whether a transfer to charity was ‘cold blooded’ and thus a business expense (generally fully deductible) or ‘altruistic’ and thus a gift to charity (subject to the limits on charitable deductions). Such cases were legion before 1936, when Congress first allowed a deduction for corporate donations to charity, and our review shows how the floor could render the business versus charity distinction relevant once again-leading to complexity and new litigation. We also explain the mechanics of the floor and the underappreciated fact that it will impact not only tax liability but also corporate financial statements-making the floor’s impact even more salient. We then analyze the floor through the lens of classic tax policy analysis, focusing on how the floor violates the norm of neutrality (creating deadweight losses with no offsetting benefits) and how the use of a floor in the corporate context (which we believe is unprecedented) is problematic in light of the traditional uses of floors in the tax law. Finally, we argue that Congress, through the floor, has inadvertently and unwisely signaled a value judgment in the ongoing debates over corporate purpose, strategy, and charitable giving.”