News and analysis
November 30, 2012

Nonprofits Step Up Pressure to Keep Charitable Deduction Intact

Nonprofits are stepping up the pressure on Congress and President Obama to protect the charitable deduction as elected officials continue to debate spending cuts and tax increases to reduce the national deficit.

More than 225 nonprofit leaders are scheduled to arrive in Washington on Tuesday to begin a two-day lobbying effort to warn Congress about what they say will be great harm to their organizations if the charitable deduction is reduced.

They will arrive with new polling data released this week by United Way Worldwide that shows widespread public support for protecting the charitable deduction.

In addition, Independent Sector, a group that represents charities and foundations, sent an e-mail Thursday to its members requesting they make a donation to help pay for a full-page advertisement in the newspaper Politico, which circulates widely among members of Congress and their aides.

The planned ad features an open letter that Independent Sector is sending to Congress and President Obama advocating for the charitable deduction.

In the e-mail, Diana Aviv, chief executive of Independent Sector, asks the group’s more than 600 member organizations and their affiliates to sign the letter and to donate “$250, $500, or $1,000 to make this ad possible.”

“The threat to charitable giving has rarely been more pronounced, nor the need for our response more immediate,” states the e-mail, signed by Ms. Aviv.

Lobbying Congress

The appeal for donations comes as organizers are putting the finishing touches on Protect Giving—D.C. Days, an effort sponsored by the Charitable Giving Coalition, a group of national nonprofits.

The coalition is asking nonprofit leaders to meet with lawmakers and provide examples of the low-income and vulnerable people they may not be able to serve if donors give less because charitable deductions are reduced in value.

Nonprofits say donations have already been hurt by the slow economy and any decrease in tax breaks will just give donors more reason to reduce their gifts. “I’m spending all of my time on this issue,” Ms. Aviv said.

Spending Cuts

Some nonprofits have been critical of leaders for not spending more time pushing Congress to avert the $55-billion in spending cuts that are scheduled to go into effect automatically on January 2 along with tax increases unless Congress makes a deficit-reduction deal.

Those cuts could hurt the operations of nonprofits that deliver services with government grants; nearly one-third of nonprofit financing comes from government sources.

Nonprofits will still be hurt even if the automatic cuts, called sequestration, don’t take place, charity experts say, because Congress will most likely slice spending on domestic programs.

“Even if there is a deal to avert the sequester, it’s going to include substantial cuts to human-service programs, just maybe not as bad as the sequester,” said Steve Taylor, senior vice president for public policy at United Way Worldwide. “Part of the reason we’re fighting so hard on the charitable deduction is that we know cuts are coming. We need to be able to raise private funds to continue to deliver human services.”

2 Ideas for Limiting the Write-Off

Lawmakers and White House officials are said to be discussing two ways to limit the charitable deduction.

President Obama has proposed reducing from 35 percent to 28 percent the amount wealthy people could write off from their charitable gifts.

Today, someone at the highest income-tax bracket who gives $1,000 in gifts receives $350 in tax breaks. So the gift essentially costs only $650.

If the president’s proposal were to become law, that same donor would pay $720 out of pocket—nearly 10.8 percent more than before.

In addition, a proposal introduced by Mitt Romney during the presidential election is now gathering support. Mr. Romney proposed capping all itemized deductions, including the mortgage deduction, at $17,000 to $25,000.

Ms. Aviv said such a cap is tantamount to eliminating charitable deductions because taxpayers would hit the limit on their deductions simply by writing off mortgage interest.

“People are beginning to realize that the cap is much worse for the charitable deduction than even the proposals that the president proposed,” Ms. Aviv said. “The cap gives individuals a choice on what deductions to take. No one is under any illusion that the deduction they will take first is what benefits them first: the mortgage deduction.”

Mr. Taylor said that in his work in Washington that he has heard that the White House does not support a cap.

“I understand that the White House is expressing some skepticism about the Romney proposal. They recognize the downside of that, that it would effectively eliminate the charitable deduction for some people,” he said. “Nothing that the White House has said makes me think they’re taking [the 28-percent] off the table.”

Even if the charitable deduction survives whatever deal is cut before the end of the year, Mr. Taylor said changes to it will remain in discussion throughout tax debates expected in 2013.

“At the moment, we’re very focused on the fiscal cliff,” Mr. Taylor said. “But none of us think there’s a light at the end of the tunnel after the fiscal cliff. If charities dodge the bullet on changes to the charitable deduction during the fiscal-cliff negotiations, I think we’re still at significant risk in the upcoming larger tax-reform discussions.”

79% of Americans Oppose Limits

Mr. Taylor says United Way executives from around the country will join in the effort to lobby members of Congress next week.

The coalition has scheduled more than 200 meetings with members of the Senate Finance Committee, the House Ways and Means Committee, and party leaders—Republican Speaker John Boehner and Rep. Nancy Pelosi, the Democratic minority leader.

The group is coming armed with details on how the charitable tax deduction benefits their organizations.

Private contributions are the third-largest revenue source for nonprofit organizations over all, accounting for $202-billion to charities in 2010, according to the Urban Institute’s Center on Nonprofits and Philanthropy.

The leaders will also be armed with new data that show the public supports their cause: “Seventy-nine percent of Americans believe reducing or eliminating the charitable tax deduction would have a negative impact on charities and the people they serve,” according to a summary of poll results released by United Way.

The poll of 2,000 people was conducted in November for United Way Worldwide by iModerate Research Technologies. It has a margin of error of 2.2-percent, according to United Way.

“The poll just shows that Americans intuitively understand the value of the charitable tax deduction even if they don’t use it themselves,” Mr. Taylor said.

The poll also found that 67 percent of Americans oppose reducing or eliminating the charitable tax deduction and that number is higher among people who earn $250,000 or more, with 87 percent of them opposing changes in the charitable deduction.

Wealthy taxpayers are the ones who are most likely to benefit from the charitable tax deduction. Taxpayers who earn at least $200,000 represented 2.8 percent of all people filing tax returns in 2009, according to Internal Revenue Service data. However, they donated 37 percent of the $158-billion in itemized charitable gifts made that year.

Dig deeper: See The Chronicle’s special section on the charitable deduction.

Send an e-mail to Doug Donovan.