Are Charitable Deductions on the Chopping Block?
Given that our personal livelihoods, our mission, and the viability of our sector all depend on charitable gifts, that is a question guaranteed to perk up our ears. It’s been on the table before and beaten back. But, with the heightened attention politicians are giving to national, state, and city deficits, the issue is in the spotlight once again. Some policy makers, including some in the Obama administration, are looking very hard at what the government would gain by phasing out or significantly limiting the tax deduction for charitable contributions.
Diane Aziz, president of the Independent Sector, wrote an opinion piece for the Chronicle of Philanthropy in July that compared this rising interest to a tsunami. In her commentary, she cites analysis predicting that if the deduction were wiped out entirely, charitable contributions would drop 25% to 36% annually. A less drastic alternative, proposed by the White House, calls for capping the dollar value of contributions eligible for the deduction. While that sounds like a moderate position, Ms. Aziz quickly points out that when someone gives $1,000 to a charity, the entire value of the donation–all $1,000–goes to work in the community. Meanwhile, the deduction only generates $350 in “lost” tax revenue. As she says, “The federal government is unlikely to find another approach that can attract private spending for community services at a nearly 3 to 1 ratio.”
The fact that the benefits embedded in that math are lost on many was evident in a meeting held with nonprofit organizations on September 9. At that meeting, White House staff indicated that the Administration will make sure that nonprofits can take advantage of the hiring tax credits in the American Jobs Act, but also said that the President’s recommendations to pay for the jobs package will include a cap on tax deductions – including the charitable deduction – for high income taxpayers.
Ms. Aziz also connects the dots to actions being taken at the city and state level. She points out that since 2000, 117 cities and 18 states have asked nonprofits to make voluntary payments to make up for exemptions from property and other taxes, according to the Lincoln Institute of Land Policy, and this trend will probably intensify as budget pressures mount in states and cities everywhere. If that weren’t chilling enough, Ms. Aziz reports that as she and her colleagues make the rounds of Capitol Hill, they find great support among our elected representatives for the work that non-profits do, but little understanding that non–profits are small (and not so small) businesses that collectively employ 10% of their constituents.
Lest I leave you dispirited and downcast, let me be quick to add that as part of their campaign to protect the charitable deduction, the Independent Sector has built a very nice toolkit of information on why the charitable deduction is important to re-building our communities. If you like sound bite statistics that will amaze your listeners, the one pager on the charitable deduction is the thing to read, as is the FAQ. After reading both documents, I still can’t say that I can respond to the request for those interested to write an op-ed for their local paper, but at least I am prepared to have a fact-based conversation with fiscally conservative friends.
