Charitable deduction lifeblood of nonprofits
BY JULIE DELCOUR Associate Editor
Sunday, December 09, 2012
12/09/12 at 2:56 AM
Last Tuesday, representatives of 225 nonprofits descended on Washington, warning elected officials that tampering with the charitable tax deduction would limit or even eliminate their ability to serve those in need.
Their efforts are a little like "Whale Wars" - an earnest mobilization to save something really big that if lost cannot be replaced. Hundreds of nonprofits nationwide, like the Parent Child Center of Tulsa, have sent out urgent appeals to supporters urging them to write their congressman. If they sound panicked, they are.
Hospitals, museums, churches, colleges, community foundations and nonprofits with missions ranging from Alzheimer's disease research and animal welfare to cancer care and homelessness to mental health counseling and addiction services are deeply worried.
They should be. Limiting charitable deductions is not just about eliminating tax breaks for donors. It is about the harm that is likely to befall people the least able to cope with reduced charitable donations - the poor, the ill, the elderly, the very young.
If the charitable deduction goes away so too do many nonprofits, and who would fill the void? The government? Uncle Sam already is cutting grants and funding to programs. Or, do we make vulnerable people go without services? Unmet needs - especially in Oklahoma - have a way of showing up elsewhere, in places like the streets (homelessness), prisons, in dropout rates and in hospital emergency rooms.
Since its creation in 1917, the charitable deduction has been, as Tulsa Community Foundation Director Phil Lakin describes it, "a sacrosanct American tradition."
"It's helped make America the envy of the world in charitable giving."
The deduction remains popular. A majority of Americans support it, including more than 60 percent of those who do not even claim it.
Lakin doesn't believe Congress would entirely eliminate the deduction. But the dire deficit situation makes the deduction vulnerable to capping. Nothing is safe. Only three weeks remain until the Bush-era tax cuts expire and automatic across-the-board program cuts start to kick in.
Congressional leaders and the president are making little progress in clawing their way toward common ground on deficit reduction. Tax increases as a way to generate more revenue are anathema for most Republicans and spending cuts to entitlement programs are poison to most Democrats. Getting rid of certain tax breaks - especially those mostly benefitting only a small segment, the wealthy - is a less painful target for leaders. But capping the charitable deduction (as President Obama has proposed) or eliminating the tax break altogether could prompt many of the 30 percent of taxpayers who itemize deductions to reduce giving. How much is a matter of debate.
The Tax Policy Center estimates giving would drop off by $9 billion. Some experts say that is a ridiculously low estimate. In 2010, those taxpayers itemizing deductions provided $170 billion, or 79 percent of the money that individuals donated to nonprofits.
"If loss of the charitable deduction causes people who itemize deductions to reduce their giving by just 20 percent, that would mean a $34 billion drop in charitable giving, by far the largest decrease since the Great Depression," says, Robert Sharpe of the Chronicle of Philanthropy. That $34 billion is more than three times the sum individuals donated to all U.S. colleges last year (minus bequests).
(Two percent of taxpayers in the top tax bracket donated a third of all charitable giving in 2008. A recent study indicated that the top two categories for high-income givers is education, 79.6 percent, and basic needs, 68.8 percent.)
It's true that wealthier taxpayers benefit the most from charitable tax deductions. Taxpayers who earn at least $200,000 represented 2.8 percent of all people filing tax returns in 2009. However, they donated 37 percent of the $158 billion in itemized charitable gifts made that year.
On the other side of the debate, especially among flat-tax advocates, is the argument that the charitable deduction is costing Uncle Sam too much - maybe as much as $250 billion from 2010 to 2014. Loss of revenue from all individual income-tax breaks costs more than $1 trillion in revenue each year. That's serious money for a congressional crowd desperately searching for revenue.
Yet, eliminating or downsizing the charitable deduction is a short-sighted option.
"The very bad thing from a government perspective is that there will be no change in need among those helped by nonprofits," says Lakin. "If I had a choice I would never give the government a dollar to provide services when I could give a charitable organization that same dollar. The core of me knows that charity spends it far more efficiently. It's perplexing that there would be an attempt to shift the burden back over to the government, the least efficient method of getting needed services. Who knows what the ramifications would be."
For every dollar a donor gets in tax relief for a donation, the public typically receives $3 of benefit. "No other tax provision generates that kind of positive public impact," the recent Parent Child Center appeal letter stated. "The charitable deduction is different than other itemized deductions in that it encourages individuals to invest in meeting the needs of their local community. It rewards a selfless act, and it encourages taxpayers to give more funds to charities than they would otherwise have given."
Some would argue that getting a tax write-off is not an entirely "selfless act." But it's irrefutable that these charitable donations mean fewer public dollars are needed to meet basic human needs. If charitable donations are greatly reduced, who will step up to help those in need?
"It's a mistake to think that tweaks in the current system that would limit or end charitable deductions don't matter...," Sharpe said. It's not hard to fathom how taxes and charity work, he added. "Just do the math."
The battle to preserve the charitable deduction will be intense in the coming weeks. A recent appeal letter put it this way:
"Our community (nonprofits) needs to convince the president and congressional leaders that far from providing a 'fiscal bridge' into 2013, capping the charitable deduction could carve a ravine into which the most vulnerable Americans would fall."
Original Print Headline: Whale Wars
Julie DelCour, 918-581-8379
Photo illustration by STEVEN RECKINGER/Tulsa World