March 09, 2011

Congressman Urges Foundation Officials to Push for Tax Changes

With Washington scurrying to try to avoid a federal government shutdown, now might not be the easiest time for foundation officials to bend the ear of Congress members. But about 250 foundation employees are scheduled to be in town this week, as part of the Council on Foundations and the Forum of Regional Associations of Grantmakers' annual "Foundations on the Hill" day, to try to make their case to federal legislators about the value of philanthropy.

At a lunch on Tuesday, they heard from Rep. Earl Blumenauer, Democrat of Oregon and a member of the House Ways and Means Committee, who shared his perspective on tax issues that affect nonprofits.

His message about the importance of foundation advocacy was simple: "If you're not at the table, you're on the menu."

Given the enormous pressure on legislators to reduce the federal deficit, Mr. Blumenauer said that some people are eyeing ways to change the charitable deduction. President Obama has proposed capping the deduction for all taxpayers at 28 percent. While the idea hasn't gone anywhere in Congress, Mr. Blumenauer said that "there are lists being circulated" about ways to raise revenue and that "I saw one last week and you were on it."

Mr. Blumenauer said there are merits both for and against changing the deduction. He raised the issue of equity, questioning whether it makes sense for wealthier people to be able to deduct a higher share of their gifts.

"Some of us get a tax break that is three times as large for our charitable contributions than someone who is proportionately more generous but in a lower tax bracket," he said.

Does it matter whether changes help or hurt giving, Mr. Blumenauer asked, if "we're moving toward more equity?"

He noted, too, that major gifts dropped last year despite the fact that there was no estate tax in place in 2010. Many experts argue that the estate tax creates an incentive for wealthy people to donate money to charity.

Mr. Blumenauer also said foundations had an opportunity to push for changes in tax policy that they favor: "There's a drumbeat toward making some significant changes."

For example, the Council on Foundations has pushed for a simplification of the excise tax on private grant makers. The way the code is structured now, the council and other nonprofit groups say, it penalizes foundations for significantly increasing their giving in any particular year.

"You have a legitimate argument to be made that we can simplify this a little bit at no loss to the Treasury," Mr. Blumenauer said. As Congress considers tweaks to the excise tax, he said, "there's an opportunity for you to make sure there are some technical adjustments that make your job easier, not harder."

He also said that there was a chance to "institutionalize" the IRA charitable rollover, which allows Americans to transfer money from their individual retirement accounts directly to charity without first having to recognize the distribution as income.

Mr. Blumenauer also praised the Rural Philanthropy Growth Act, an outline for legislation that would use existing Department of Agriculture funds to provide matching grants to community foundations and build endowments to benefit rural communities.

The proposal could help stem the tide of young people moving away from rural parts of the country and slow the consolidation of land among a handful of owners, he said.

"If we aren't able to get this right, it will turn into a lose-lose-lose proposition," Mr. Blumenauer said of the challenges facing the rural United States.