Pushing Charities Off the Fiscal Cliff?
Last week, I had the privilege of leading a diverse group of advocates from across the spectrum of the charitable sector to congressional offices in support of the Charitable Giving Coalition’s “Protect Giving – D.C. Days.”
You cannot escape talk of the oft-mentioned “fiscal cliff” and the looming lethal combination of major federal spending reductions (sequester) and expiring tax cuts (Bush-Obama tax extensions) set to take effect in January 2013.
“Protect Giving – D.C.” is an ongoing attempt to raise the direct policy concerns of the nation’s charitable sector and the possible devastating effect that last-minute negotiations to thwart the cliff may have on the tax policies around contributions to charity.
Needed: Federal Revenue
I warned in a previous post last June that the resulting mess that occurred after the failed “supercommittee” and debt limit deals of 2011 would probably complicate the bargaining positions of President Barack Obama and the U.S. Congress as they struggle to forge an agreement to spare us some of the pain.
I hate to be right on this one...currently, they are at loggerheads on how to get more money returning to the federal coffers and avert the cliff.
President Obama plans to follow through on extending tax cuts for the middle class and letting them expire on top earners as part of raising more revenue. Republicans—primarily the House Republican Conference led by lead fiscal cliff negotiator Speaker John Boehner—have generally not been warm to that idea. But, as of this writing, there was some movement towards accepting higher rates for high earners.
Still, Republicans have publicly proposed closing “loopholes” in the tax code as a major revenue raiser. Those loopholes might include itemized deductions.” A recent Washington Post article summarizes the tensions. As The Jetsons' family pet dog was fond of saying “rut-roh!”
The Non-Proposals and Proposals
Enter itemized deductions, including the charitable deduction, and competing proposals to restructure, reduce the value of or eliminate them. Most notably for nonprofit arts groups, personal contributions have been estimated to make up 25 to 45% of income depending on the size of the organization.
Changes to incentives to giving would most likely have a dramatic impact on giving regardless of which policy gets approval. Among high earners, 68.8% give to arts and culture making it one of most popular contribution categories.
Few of the proposals are on paper as the president and the speaker negotiate privately. The things we do know are that the president has proposed limiting to charity to 28% in every budget request of his administration and presidential candidate Mitt Romney envisioned an aggregated pool for all itemized deductions. In effect, you could fill in that pool with whatever you itemize until you hit your maximum threshold. You can read analysis of how these proposals might scale-out by the Tax Policy Center.
You can also look at what the White House is saying in regards to the dollar cap proposals vis-a-vis the threat to the deduction. With the inclusion of other deductions (the mortgage deduction, for example) taxpayers would basically be forced into a Catch 22 on where to reduce their tax liability within those strict monetary caps. That is the administration’s take, anyway, and current negotiations may yield quick changes to the current bargaining positions.
Protect Giving Day - D.C.
Against that backdrop, Americans for the Arts joined The Charitable Giving Coalition, organized by the Alliance for Charitable Reform, and 250 other nonprofit sector advocates from nearly every charitable interest in asking Congress and the Obama Administration to preserve the charitable deduction.
We were sent off that morning with words of encouragement from Father Larry Snyder of Catholic Charities and United Way President Stacey Stewart who urged us to do what the sector does best: Tell our elected officials what we do for the communities they represent.
In my group, representatives of the United Way, Ocean Conservancy, higher education, and the arts had the opportunity to show how charitable gifts translates to caring for the needs of the less fortunate; protecting our environment; educating our children and preserving access to the arts and culture.
Every staff person we visited knew that charities are fundamental to healthy communities, but also cautioned that they do not know what proposal will ultimately win out.
Also, that the charitable deduction is not a conversation about who does and doesn’t get a tax benefit, but about the ability of people to help other people and provide services to those who need it most.
As Americans for the Arts Chief Counsel of Government and Public Affairs Nina Ozlu Tunceli was quoted on a recent Independent Sector conference call, “It’s really going to be the communities who are the losers in this.”
Other factors lawmakers may want to pay attention are the size and scope of the sector on the economy. Nonprofits account for 5.4% of the Gross Domestic Product and 9% of all wages paid.
Personal contributions have been curtailed by the recession and the need for the services of the charitable sector has increased exponentially. Now is the time to take gifts to charities off the table and find solutions that do not put charities in danger.
(Editor's Note: You can find out more about this issue and write your members of Congress through an Americans for the Arts Action Fund Alert.)