November 13, 2012

Charitable-Deduction Limit Would Hurt Poor, Say Nonprofit Leaders

Nonprofits need to alter their approach to protecting the charitable deduction, said nonprofit leaders from across the country gathered in San Francisco over the holiday weekend. Instead of talking about the effects on wealthy donors, they said they must demonstrate they are seeking to protect their services to the poor.

As the lame-duck Congress prepares to convene Tuesday, charity and foundation officials at Independent Sector's annual meeting discussed the charitable deduction as well as the impact of federal spending cuts that Congress could approve to avert falling off the so-called fiscal cliff.

Lawmakers have discussed many ways to raise money, including capping the tax deduction that taxpayers get for gifts to charities and eliminating the tax deductions that homeowners get for mortgage payments.

Nonprofit leaders say that federal spending cuts of any size will decrease the amount of government money they receive to deliver human and social services to the poor and unemployed, so they need to be able to raise private donations to cover the losses.

“For us it has always been about the people who we help and not really about the donor,” said Steve Taylor, United Way Worldwide's public policy counsel.

“We know that donors who take tax policy into consideration when they make their donation, they’ll simply deduct the additional tax from their donation. For the donor it will not make much difference out of pocket," Mr. Taylor said. "Where it’s really going to be felt is where the smaller donation reduces our ability to help people at the bottom of the economic spectrum.”

At its conference, Independent Sector set up computers that allowed everyone attending to send messages to their Congressional representatives about the deduction's importance to their budgets. It also has set up a Web site to make it easy for people at nonprofits to do the same.

Many of the nonprofit leaders at the weekend meeting are working as part of a group known as the Charitable Giving Coalition that is organizing an effort to descend on Washington on December 4-5 for "Project Giving-D.C. Days." The lobbying action is meant to be a show of force to Congressional leaders.

The Alliance for Charitable Reform, a project of the Philanthropy Roundtable, recommends on its Web site that nonprofits come to the event armed with three key elements: the number of people their organizations employ, the percentage of funds they get from individuals, and the number of people they serve every year.

Sue Santa, senior vice president for public policy for the Philanthropy Roundtable and a coalition leader, said during an Independent Sector session on Sunday that a presence in Washington is crucial to stay on top of any decisions that could arise quickly.

Neal Denton, chief government affairs officer at the YMCA of the USA, said Congress could add a provision to limit the deduction to legislation at anytime.

That's why providing a unified voice and having a consistent presence during deliberations will be crucial for nonprofits.

"This is all going to happen very fast," Mr. Denton said. "I don't want to be the one to answer the phone at 4 a.m. hearing someone say, 'Did you hear what they did?'"

United Way's Mr. Taylor said the actions nonprofits are now taking must continue next year as Congress is expected to overhaul the tax system.

"Throughout 2013 we're going to have to have a very significant presence" in Washington, Mr. Taylor said. He said nonprofits are dwarfed by the lobbying power of realtor and home-builder associations that seek to protect the mortgage deduction.

"The more unified we are around tax reform, the better off we'll be," Mr. Taylor said.

Kyle Caldwell, executive director of the Michigan Nonprofit Association, said at the conference that nonprofits must have a seat at the bargaining table or risk missing out on advocating for the interests of their organizations and of the people they serve.

"You're either at the table or you're on it," Mr. Caldwell said. "Right now, we look like the main course."

Despite all the enthusiasm generated at the conference for a unified effort to lobby Congress, the Independent Sector's main speaker on Sunday provided a sobering thought to the debate.

"Every sector and every person are going to be asked to give a little bit," said Matt Miller, a Washington Post columnist. "I hope you’ll be open-minded about the fact that it is possible to endure not eliminating the deduction but with limitations on what some folks can do. That might be something the sector can find its way at the end of the day to be OK with."

After a silence fell over the audience, Mr. Miller added: "I noted no applause at all."

Dig deeper: See The Chronicle’special section on the charitable deduction, including a look at the latest research and proposals.

Send an e-mail to Doug Donovan.