Fiscal Cliff Leaves Non-Profits on Edge

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Charities are worried this may be the last season of giving.

As Congress grapples with tax reform and deficit reduction, lawmakers are looking at limiting some long-standing tax deductions, including the one for charitable giving, as a way to raise revenue.

President Obama already supports limiting the amount of tax-free giving Americans can do; his proposed 2013 budget would limit the value of all itemized deductions to 28% for families making $250,000 or more a year, or for individuals making $200,000 and up.

And with the so-called “fiscal cliff” looming and Republicans warming to the idea of raising more revenue withoutincreasing tax rates, limiting deductions for the wealthy appears likelier than ever.

Steve Taylor, Vice President for Public Policy at United Way, worries that new limitations would hobble his organization, the largest charity in the country. According to Taylor, 15% of United Way’s $4 billion annual revenue comes from the top 1/3 of 1% of donors.

William Daroff, VP for Public Policy at the Jewish Federation of North America, says his group follows the 90/10 rule. “90% of our donations come from our top 10% of donors,” he says.

Because wealthy Americans would likely deduct their mortgage interest, state and local taxes, property taxes and health insurance premiums before making charitable gifts, organizations like United Way and JFNA could take a big hit. Some proposals would “virtually eliminate[e] the charitable deduction for a certain class of people,” Taylor says.

According to the Tax Policy Center, Obama’s plan would raise revenue by $164.2 billion over 10 years. Although it’s incredibly unlikely to happen, ending all itemized deductions would raise around $2.2 trillion over 10 years.

Despite those figures, Rev. Larry Snyder, President of Catholic Charities, says that there may be some hidden costs in taking away incentives to give. “If we have to cut back our services, then the government is just going to have more people at their door,” says Snyder. “It really is one of those things where you cut off your nose to spite your face.” Catholic Charities provides aid to more than 10 million Americans in poverty.

The debate over itemized deductions is coming at a difficult time for charities. According to the Nonprofit Finance Fund, 85% of nonprofits experienced higher demand for services in 2011, and at least 70% have seen increased demand since 2008. The Charitable Giving Coalition estimates that Obama’s plan could reduce charitable giving by up to $5.6 billion a year.

On December 4 and 5, Charitable Giving Coalition, a group of hundreds of nonprofit leaders including United Way, JFNA and Catholic Charities will gather on Capitol Hill for “Protect Giving- D.C. Days” to try to persuade Congress to leave the charitable deduction untouched. And there are signs such a deal is possible.

Third Way, a centrist Democratic advocacy group, has proposed capping itemized deductions at $35,000 while excluding the charitable deduction. Jim Kessler, VP for Policy at Third Way, says the proposal was well received on Capitol Hill. “There is a wellspring of good feeling toward charities and charitable donations,” he says.

Kessler believes there are two reasons the charitable deduction will survive. “One is political, which is, you don’t want everyone from the Catholic church to the New York City ballet to the local soup kitchen opposing you. And number two is that charitable work is extremely valuable and it should have a preference in the code.”

12 comments
JohnSimon1
JohnSimon1

I am set and squared.... Jump off the dang cliff..... I heard a rumor TIME is contemplating Sandra FLUCK as Person of the year?? Really????!!!! How stupid is that???? Not only should that thing slink back under the rock she slithered out from under, but her parent's should be ostrisized. Why is simple. They NEVER taught her the core of the American Way.... "PERSONAL RESPONSIBILITY" All Dems forfot what it was to take care of their own selves. Social Programs???? END ALL OF THEM!!!

IMPEACH OBAMA FOR WHAT HE IS.... THE REAL ENEMY TO AMERICA!!!

Ivy_B
Ivy_B

It is not only the kind of social welfare charities that figure in this, but many educational and cultural.groups count on donations. Museums, libraries, theater groups to name a few.

SoGlib
SoGlib

@TIME @timepolitics Too bad. We're all on edge thanks to #Obama and his failures. #tcot

roknsteve
roknsteve

Steve Taylor of United Way and William Daroff of Jewesh Federation probably pay themselves a million a year.  That's what they're really worried about.  They may have to take a pay cut.

PaulDirks
PaulDirks

There's a simple rule that people put significant effort into ignoring when the subject of taxes comes up. If you want to gather significant amounts of revenue, the place to go is where the money is. What's true of taxes is also true of charities. Therein lies the dilemma.

nflfoghorn
nflfoghorn

Capping deductions for the very rich should be OK versus eliminating them.

DonQuixotic
DonQuixotic

It's not just charities; there are plenty of military non-profit associations that are on edge over this too.

ARTRaveler
ARTRaveler

Sorry, this one belongs to the GOTP and specifically Boehrner and Cantor in the U S House and their inability to  have their party act like they represent people who live in their state and in their district.  Cantor led a revolt against his own leadership (?) after the makings of an agreement had been reached and the result was that Congress, who couldn't figure out how to order a ham sandwich, came up with the fiscal cliff idea to force themselves to actually do something.  If they can't reach a decision, they ought to go home for the next few years because they aren't worth the air they are breathing in DC.

edward52
edward52

that may be the stupidest comment I’ve ever heard..... grow up!

ARTRaveler
ARTRaveler

Then go after the charitable deduction for churches.  Open them up for income taxes, property taxes, and start to actually make sure they even disserve the classification "charity".  Too many are frauds, using a church to push a political belief!

bobell
bobell

Don't kid yourself.  If deduction caps bite, rich people are going to reassess their deductible expenditures.  It's hard to cut back on the amount you pay in mortgage interest and state and local taxes, which are two of the three largest deductions, the other one being charitable contributions, of course.  So if your deductions are going to be limited and you want to cut your expenditures on things that are deductible only up to a point, charity is the obvious place to start. Someone in the top bracket right now can give $10,000 to a charity and have Uncle Sam pick up $3,600 of that   With a cap that $3,600 federal subsidy for charity may vanish. 

Are you still sure capping deductions for the rich is okay?

Arimathean
Arimathean

@bobell Moreso than continuing a federal subsidy of the charity (as you quite effectively put it).