Obama Plan Could Cost Nonprofit Sector $5.6 Billion a Year

The outcome of the most recent Election Day contests for President and Congress means many things to many people. For the nonprofit sector, it means it’s time to get back to work on Capitol Hill as Congress considers a proposal by President Barack Obama that could cost the nonprofit sector billions of dollars in philanthropy.

Michael J. Rosen, CFRE meets with Sen. Max Baucus (D-MT)

On December 4 and 5, 2012, hundreds of nonprofit professionals from around the country will gather in Washington, DC for “Protect Giving-DC Days.” Participants will gather for a working dinner and, the next day, will meet with members of Congress and their staffs to encourage them to preserve the charitable giving tax deduction by helping them understand the potential impact that a decline in private giving would have on local programs and the people they serve.

Protect Giving-DC Days is being organized by The Charitable Giving Coalition, an alliance of over 40 charitable organizations, nonprofits, and associations pushing for common-sense tax policies that recognize the critical role philanthropy and the nonprofit sector play in restoring America’s economic and civic health. Coalition members include the Association of Fundraising Professionals, United Way Worldwide, the Salvation Army, Catholic Charities USA, the American Council on Education, the American Institute for Cancer Research, Independent Sector, The Philanthropy Roundtable, and others.

The advocacy effort is critically important as Congress attempts to identify ways of increasing revenues by limiting or eliminating tax deductions, including those for charitable giving. For example, Obama has proposed limiting the federal-tax charitable-deduction to 28 percent for individuals earning more than $200,000 and couples earning more than $250,000. Currently, taxpayers may claim up to a 35 percent charitable deduction.

A press release issued by the Coalition explains:

In 2011, individuals gave nearly $300 billion to support charitable causes, according to Giving USA.

Much of that giving is claimed as a charitable deduction by millions of taxpayers each year.… Any caps or limits on charitable giving will have a devastating impact on charities and nonprofits. If donors have less incentive to give to charities — donations will decline, impeding the important work nonprofits do for the millions of Americans who rely on them. For example, up to $5.6 billion in charitable giving would be lost each year if the President’s proposal to cut the charitable deduction were enacted.”

The Obama proposal comes at a time when the nonprofit sector is seeing increased demand for its services. According to the Coalition, the Nonprofit Finance Fund reports that 85 percent of nonprofits experienced higher demand for their services in 2011.

In a letter to Obama, the Coalition wrote:

Any proposed cap would have long-lasting negative consequences on the charitable organizations upon which millions of Americans rely for vital programs and services.

Higher income taxpayers account for the majority of individual giving. According to a recent Congressional Budget Office report on the tax treatment of charitable giving, tax filers who reported an adjusted gross income of at least $100,000 in 2008 were responsible for well over half (about 58 percent) of all charitable giving by taxpayers.”

For more information and to sign-up to participate for Protect Giving-DC Days, please click here.

The Association of Fundraising Professionals, Chair of the Coalition, has a great deal of experience working with members of Congress. For example, when I was Chairman of the AFP Political Action Committee, I met with Sen. Charles Grassley (Ranking Minority Member, Senate Finance Committee) and Sen. Max Baucus (Chairman, Senate Finance Committee). I also met with other members of Congress as well as Congressional staffers, and I represented AFP in testimony to the Federal Trade Commission.

In the most recent election, the AFP Political Action Committee gave $24,000 to “10 members of Congress who are (or were) up for re-election, six in the House and four in the Senate,” according to a report in The Chronicle of Philanthropy.

 The AFP PAC is the only political-action committee that makes campaign contributions to federal candidates based exclusively on whether they support — or are in a position to sway — government action to benefit philanthropy. The AFP PAC was created to provide an additional tool to help step-up the organization’s advocacy efforts. The PAC helps AFP get a foot in the door so it can present its case.

For more information about the AFP PAC, click here. Please note, for legal reasons, the AFP PAC web page is only accessible to AFP members in the USA.

For information about some of the various discussions in Congress impacting the nonprofit sector, please read the following posts I wrote on the subject:

Special Report: U.S. Senate Finance Committee Holds Hearing on Charitable Giving Tax Deduction

Special Report: Congress Considers Charitable Tax Deduction “Reform”

Special Report: Where Does the Charitable IRA Rollover Stand?

Attack on the Charitable Gift Deduction, 5 Part Series — Taxes Part 1: What is the Federal Government up to?

Taxes Part 2: Proposals to Eliminate or Reduce the Charitable Gift Deduction

Taxes Part 3: Proposal to Replace the Charitable Gift Deduction with a Tax Credit

Taxes Part 4: Why Have a Charitable Giving Tax Deduction?

Taxes Part 5: What Should the Nonprofit Sector Do?

The Obama tax plan could cost the nonprofit sector $5.6 billion a year, unless we take action now. We each need to make sure our voices are heard on Capitol Hill. Remember, if you don’t participate in Protect Giving-DC Days or other advocacy efforts, you forfeit your right to complain about the plan that Congress eventually settles on.

That’s what Michael Rosen says… What do you say?

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20 Responses to “Obama Plan Could Cost Nonprofit Sector $5.6 Billion a Year”

  1. Michael,

    Another excellent read, but unfortunately posted a few days too late. I wonder how many in the nonprofit sector were aware of the potential loss of a tax deduction which may very well decrease giving before casting their ballots.

    I suggest you share Gary Ravetto’s discussion of the nonprofit sector: “Nonprofits, are we the two-face sector?” People can find it at The Chronicle of Philanthropy Group on LinkedIn. It nicely fits with this discussion.

    • Richard, thank you for sharing your thoughts and the for the suggestion that folks check-out the discussion started by Gary Ravetto on LinkedIn. While my post comes after the election, it is only the latest in a string of posts I’ve done about the various tax proposals floating around Capitol Hill. In the interest of fairness to President Obama, I should point out that Governor Romney’s vague tax proposal also included some sort of cap on deductions, including the deduction for charitable giving. While the Romney proposal was not scored, it would likely have resulted in a reduction in philanthropy as well. In the quest to take in more revenue, both Democrats and Republicans seem to have found some common ground. Unfortunately, that common ground may come at the expense of the nonprofit sector unless the sector speaks up now.

  2. Romney’s plan, while perhaps reducing the charitable deduction, would have encouraged growth and wealth creation that would have enabled philanthropy.

    • Doug, thank you for commenting. You make an interesting point. While I won’t start a debate about which candidate’s plans would be best for the economy, I will point out that philanthropy has historically most closely corelated to personal income. So, regardless of what happens with tax rates and deductions, if people have more money at the end of it all, they will likely give more; if they have less money in the end, they will likely give less money. Limiting the tax deduction for charitable giving makes giving more expensive; it gives people less money with which to donate; that’s why giving will be negatively impacted by such a move.

      • Michael,

        While I do appreciate your article and your mission to continue support of the nonprofit sector of which I wholly support, I think it’s only fair to offer an alternative to your comment that those with more money are more likely to give.

        Most recently in 2012, a study conducted by The Chronicle of Philanthropy showed that lower-income are often more likely to donate (see: http://bit.ly/TLxyx6).

        Just to ensure that I wasn’t favoring this current political climate, I also found an article from 2003 that noted the “poorer” states were also more likely to give (http://bit.ly/TLyD87).

        I share this information as a cautionary tale: when we consider reaching out to potential donors and fundraising efforts, we don’t want to exclude any one group, especially those that we may consider not reaching out to because they’re lower-income.

      • Carrie, thank you for commenting. Unfortunately, while your facts are correct, your interpretation is not. And, your characterization of my remarks is completely incorrect. Allow me to explain.

        I never claimed that personal income correlates with propensity to give. In other words, I never said, “…those with more money are more likely to give.” What I did say is that when overall personal income goes up, overall philanthropy increases in real dollars; whenever overall personal income goes down, overall philanthropy decreases in real dollars. Overall, philanthropy has historically been about two percent of personal income. Changes in personal income does not really impact that two percent figure. What happens is that the size of the pie increases and decreases. Therefore, in actual dollars, that two percent slice fluctuates in value as personal income (the size of the pie) changes.

        By the way, while it is true that lower income househholds give a higher percentage of their income to charity than wealthy households, the reality is that the wealthy still give more in total dollars.

        What happens when the government takes more of a household’s money through increased tax rates or by allowing lower deductions, the household’s personal income decreases. Therefore, if the houeshold donates the same percentage of its personal income, the dollar value will be less because the personal income pie is less. In the case of the Obama tax plan, this will result in a $5.6 billion a year decrease in philanthropy.

        I hope this clarification helps.

  3. Thank you, Michael, for this post and for consistently sharing information about this type of advocacy! I think both of the other comments make valid points. I’m interested to see how a compromise will be reached on this important topic.

    • Brenda, thank you for commenting. When members of Congress consider charitable giving to be a tax “loop-hole” that needs closing or limitation, the nonprofit sector is in serious trouble. It’s always difficult to accurately predict what Congress will or will not do. We just all need to do our part, and hope for the best.

  4. Michael, great post and cross-referenced info/materials (as usual). Curious, what are your thoughts on the return of the Pease limitation in 49 days. In my discussions, including Mike Bats, no one is talking about the surgically fixing the Pease limitation. Is our only hope to avoid the return of this monster simply the proverbial “kick the can down the road” strategy , or is it possible for Congress to specifically extend the return of the 3% Pease limitation. Thanks in advance.
    Brad Gornto

    • Brad, thank you for commenting. In the National Football League, they say anything can happen on any given Sunday. In other words, teams expected to win easily can be defeated. Well, the same is true of Congress. It’s impossible to predict what will or will not happen. Congress could come up with a long-term spending and tax plan before the end of the year. Congress could adopt a temporary solution to avoid the “fiscal cliff” and take up tax and spending issues in the new Congress. Congress can adopt something temporary now and something temporary once again in the new Congress. Congress can drive us off the cliff. The solutions ultimately adopted might or might not directly impact the nonprofit sector. The solutions adopted in the end might or might not indirectly impact the nonprofit sector. In other words, anything is possible. It’s impossible to predict the outcome.

      Now, having said all that, I think it’s safe to assume that both political parties are interested in generating more revenue for the federal government. So, one way or another, some people are going to end up paying more in taxes. And that, directly or indirectly, will be bad for nonprofit organizations.

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