Updated March 4, 4:16 p.m.
Nonprofits criticized a plan offered by President Obama on Tuesday that would limit the value of all tax deductions, including the charitable deduction, for wealthy taxpayers.
In his budget proposal for fiscal 2015, which starts October 1, Obama called for all deductions to be capped at 28 percent, saying the limit would only affect people whose incomes are in the top 3 percent. The change would affect individuals who earn more than $200,000 and couples who earn more than $250,000.
Foundations and charities have successfully fought back similar attempts to limit the deduction in each of the past six years but said they felt a sense of urgency this year because the tight federal budget has forced lawmakers to try to generate tax revenue wherever they can.
“Everything is on the table,” said Vikki Spruill, chief executive of the Council on Foundations.
Limiting the charitable deduction would have a “cascading impact” of charities that depend on money from private sources, she said. “This is an ‘if it ain’t broke, don’t fix it’ situation.”
Growing Income Gap
President Obama’s call to limit the deduction was part of his broad $3.8-trillion budget blueprint, with increases in early-childhood education, job training, transportation, and the hourly federal minimum wage, from $7.25 to $10.10.
He noted that as the economy has emerged from a recession, “those at the top” have rarely done better.
“But average wages have barely budged,” he said. “Inequality has deepened. ... Our job is to reverse these trends.”
President Obama proposed:
• Creating a “Preschool for All” program that would cost $76-billion over 10 years to pay for pre-kindergarten classes nationally. A similar proposal went nowhere last year.
• Nearly doubling the Earned Income Tax Credit for childless individuals to $1,000. He would also expand eligibility to people as young as 21 and as old as 66. Currently, the credit is available only to those ages 25 through 65.
• Cutting discretionary funding for the Department of Health and Human Services by 1 percent.
• Creating 40 new “Promise Neighborhoods” and 10 to 14 “Choice Neighborhoods” programs, which use federal money to “improve educational outcomes and revitalize distressed neighborhoods.”
• Slashing Community Services Block Grants money, which helps a network of community-action agencies operate antipoverty projects. He proposed a budget of $350-million, down from $674-million this year, and said the money should be awarded competitively to “high-performing agencies that are most successful at meeting community needs.”
• Cutting the Low-Income Home Energy Assistance Program from $3.4-billion this year to $2.8-billion in 2015.
• Keeping a flat budget for the Corporation for National and Community Service, at $1.05-billion, but to move the Foster Grandparent Program and Senior Companion Program into the AmeriCorps national-service program. That will allow AmeriCorps to grow from the current 79,876 members to a record 114,000 members. The plan would keep the budget for the Social Innovation Fund, which provides grants to help nonprofits expand successful projects, at $70-million.
Effects on Poverty
While it would reduce the budget gap, President Obama’s budget clearly steers away from the White House’s focus in recent years on deficit reduction, when the Democratic administration and House Republicans agreed to across-the-board cuts.
But additional money for job training and early-childhood education programs and a more generous Earned Income Tax Credit don’t represent a giant shift in policy toward alleviating poverty, according to Irv Katz, president of the National Human Services Assembly, a nonprofit membership organization. Those proposals simply augment existing efforts to “move people to the lower rungs” of the ladder of economic opportunity, he said.
Programs like the Community Services Block Grants, originally envisioned as being part of the “War on Poverty” in the 1960s have suffered repeated cuts over the years. Mr. Katz said a larger commitment from the White House was necessary to improve the lives of the poor.
“We either need to give up the ghost or weave those programs into a strengthened fabric,” he said. “We don’t have a cohesive strategy for helping move folks ahead.”
Though it focuses additional money on domestic social programs, Mr. Obama’s budget does little to escape the pain of the across-the-board cuts known as sequestration that lawmakers have passed over the past two years, according the Debbie Weinstein, executive director of the Coalition on Human Needs. When adjusted for population growth and inflation, the $563-billion budget for key domestic programs in 2015 drops to $458-billion in 2024.
“The president doesn’t quite throw off the straight jacket of sequestration,” Weinstein said. “He wriggles out of it some.”
Both Parties
It’s not just a Democratic administration that is seeking to limit tax write-offs for charitable giving and other causes. Republican members of the House are also targeting the charitable deduction.
Last week Rep. Dave Camp, a Michigan Republican who chairs the House Ways and Means Committee, released a tax blueprint that would also make changes in the charitable deduction. Mr. Camp’s draft legislation would allow people to take deductions for contributions that exceed 2 percent of an individual’s gross income.
Though many nonprofit leaders and experts on public policy have expressed doubt that either proposal would be enacted during a politically polarizing election year, Ms. Spruill said nonprofits should remain vigilant. At Ms. Spruill’s invitation, about 200 nonprofit representatives are gathering in Washington to make their case with lawmakers.
“You cannot take any of this lightly,” she said. “These are the things that begin to frame the agenda.”
