President Barack Obama’s plan to raise taxes on charitable donations by the wealthy is unlikely to pass in Congress, but sector executives say many nonprofit advocacy groups plan to rally against it regardless for fear that Congress will eventually grab funds now donated to charities.
“No one expects this plan to pass as a free standing bill,” said David Thompson, the vice president of public policy at the National Council of Nonprofits, but “a large number of folks are growing concerned” about fiscal pressures that may encourage future changes.
For example, Thompson pointed out that the budget-deficit plan drafted in 2010 by former Republican Sen. Alan Simpson and Democratic appointee Erskine Bowles would have have preserved a tax break for donors, but ended the simple tax deduction that now encourages donations. Their plan, he said, would have created new set of rules that would have made it easier for future Congresses to shrink the value of the tax deductions, and so gain more money from charities.
Obama’s $446 billion one-year spending bill, and its paired tax bill to raise $476 billion in its first ten years, “doesn’t have any legs in Congress, and didn’t even pass when Democrats ran Congress,” said Chris Dubay, a policy analyst at the Heritage Foundation.
Nonprofits, including nonprofits aligned with the Democratic Party, “all object to it… from universities to the Red Cross,” said Dubay. But the public push-back will be tepid, especially on the left, because “those organizations are seeing what everyone sees — this isn’t going anywhere.”
Obama proposed a similar curb on donations in 2009 and 2010.
In 2009, the liberal Center on Budget and Policy Priorities said the tax changes would cut donations by only 1.3 percent. The liberal Center on Philanthropy at Indiana University predicted donations would drop by only 2.1 percent.
Thomson, however, worries the losses could be greater, because the Obama proposal would cut the value of the charitable tax break by about 20 percent. “We see a big deal,” especially for larger donors and more generous donors, he said.
The loss of revenue could greatly hurt charities’ support for the poor, whose numbers may increase if government also cuts back wealth-transfer programs, he said. “We’re the fall-back plan for Republicans and Democrats [and] it is assumed the nonprofits will pick the pieces” after budget cuts.
The proposed tax-change could have an disproportionate impact on large charities, on universities and museums that rely on large donations, said Diana Aviv, president and CEO of Independent Sector, a D.C. advocacy group for nonprofits. “The nonprofit organizations that get money from donors [earning] $250,000-plus [are funding] arts and culture institutes and higher education,” Aviv said. “Very few are clothing poor people.”
But Aviv’s wealthy donors face hostility from some left-of-center advocates, who decry their public donations as “ego philanthropists.” And some of the smaller charities that operate local soup-kitchens aren’t worried about Obama’s proposed change because their donors don’t itemize their gifts, Thompson said. Aviv’s members, however, also include Catholic Charities and the United Way, which mostly aid lower-income people.
Neither Aviv nor Thompson want to see the nonprofit sector divided while Congress attempts to change today’s simple and predictable charitable tax-deduction to a formula that could be quietly modified by a future Congress in search of more revenue. “Once the tax code is changed to something they can dial up or down,” Thompson concluded, the federal government’s take of those donations “is only a matter of how much money they want.”