Editor's Note: Last week NPQ published a piece on the charitable tax deduction entitled, "The Nonprofit Sector's Embarrassing Defense of A Maximal Charitable Tax Deduction" written by Rick Cohen. We expected push back on the piece because the position we took is contrary to that taken by a lot of nonprofit leadership groups. So when we received a request from Tim Delaney of the National Council of Nonprofits to be given equal time, we were glad to provide the venue. Read both and let us know what you think!
The provision in the President’s original jobs bill proposal that had divided parts of the nonprofit community—to limit tax deductions for the wealthiest, from 35 percent to 28 percent—is now dead. Unfortunately, too many eyes have been distracted to that sideshow, when in fact the actual threats to the nonprofit community lurk elsewhere—in the Joint Select Committee on Deficit Reduction. There, the consequences to those individuals and communities that nonprofits serve are far graver: disproportionate cuts to domestic programs and the possible limitation or even elimination of the entire charitable giving incentive.
The Real Threats
The Joint Select Committee on Deficit Reduction (the so-called “Supercommittee”) could significantly limit or even eliminate the entire charitable giving incentive. No, Congress is not being mean-spirited by specifically targeting charitable giving or nonprofits. Yet the Supercommittee—which has been meeting in secret so no one can see what is about to happen to them—could easily sweep this important tool away as part of a colossal “grand bargain” that catches everyone off guard. But even incremental changes, sprung on the sector as a fait accompli, could radically disrupt the work that our sector must accomplish every day.
Consider the Supercommittee’s awesome task (cut the deficit by at least $1.2 trillion) and its impossibly tight deadline (by November 23). Slashing the deficit by such a gargantuan amount in just a few weeks virtually guarantees that the Supercommittee must make rash, sweeping changes rather than delicate, precise adjustments. Those dangerous factors are bad enough, but mixing in the current political context super-charges them into frightening volatility, for three reasons.
First,under the process adopted in August, Congress must pass the Supercommittee’s deal by December 23, without any amendments, or $600 billion will automatically be cut from defense and another $600 billion taken from mostdomestic programs. That means two things of consequence to nonprofits: the defense industry—aided by political fundraisers and armies of lobbyists—is trying to shift cuts away from them and over to domestic programs. (For example, defense loses only $300 billion while domestic programs for Americans take a $900 billion hit.) Also, there are no “do-overs”: if the Supercommittee includes the charitable deduction with changes to other deductions, it will be too late for nonprofits to ask for reconsideration. There will be no second chances. We must lift our voices now or suffer the consequences of our silence tomorrow.
Second, two of the four levers for reducing the deficit have effectively been taken off the table. House Republicans have eliminated the obvious option of increasing taxes, and Senate Democrats have opposed any substantial changes to entitlement plans. That leaves only two levers: cutting spending on programs and raising new revenues by eliminating or lowering “tax expenditures” like charitable deductions. Elected officials are seeking options from the number-crunchers (the same people who initially left nonprofits out of the health reform bill because they didn’t think we counted). Those number-crunchers do not see nonprofits as valued partners that ease the burden of government in serving Americans in local communities. Instead, they view us simply as generic “tax expenditures,” just revenue numbers drained away from federal tax coffers that they want to collect. Plus, given the time demands, policymakers are looking at recent proposals to reduce tax expenditures, including the tax deductions on Schedule A, such as medical expenses, mortgage interest, state and local taxes, and—getting lumped in with all the others, by default rather than any purposeful design—the charitable giving deduction.
Third, the possibility of a sweeping “grand bargain” is magnified by the dynamics of D.C.’s toxic political environment. The President and the Speaker previously demonstrated that they believe a grand bargain could enhance the ability of their respective political parties to win the next election. Republicans and Democrats alike—fearing major voter backlash in reaction to federal gridlock, empty bickering, and ugly posturing—may see a colossal grand bargain as an ideal ticket to their personal re-election. Even if no deal gets brokered, the automatic $600 billion in cuts to domestic spending will hit, thus hurting the people nonprofits serve and restricting the ability of nonprofits to serve. Nonprofits can help influence the outcome by speaking loudly with one voice now to warn policymakers about the potential dire consequences if they continue to ignore our collective work.
In short, nonprofits must rally now to jolt elected officials, number-crunchers, and other policymakers so they distinguish and then dislodge the charitable giving incentive from the default position of being lumped in with all other deductions and tax-expenditures. This important tool for serving others should not be reduced or eliminated out of ignorance to the pain such change would inflict on individuals and communities across America.
The Distracting Sideshow
Several false assumptions have been made by a few people tilting at windmills. Chief among them is conjecture that the key issue is the President’s former proposal to pay for his jobs bill by limiting tax deductions for the wealthiest from 35 percent to 28 percent. That assumption ignores this widely known fact: that portion of the President’s proposal is—and long has been—dead. Senate Democrats pulled that portion out of the President’s draft American Jobs Act in favor of a surtax on millionaires. As further evidence, last week’s Senate Finance Committee hearing about “Tax Reform Options: Incentives for Charitable Giving” was much more sweeping and had nothing to do with the rejected proposal in the President’s jobs bill. Pundits seeking to rally nonprofits to their political and policy goals would do themselves and the community a greater service by focusing on the real threats to the sector and on legitimate strategies for collective impact. The real risk is not the 7 percent difference from the 35 percent to 28 percent rate on the wealthy, but having the charitable deduction rate for everyone slashed from 28 percent to 15 percent or 12 percent, or even zero.
Another distracting assumption is that any monies saved through the reduction in giving incentives will automatically be spent on entitlement programs and pay for other domestic programs that otherwise might be cut. Many would support that notion if that were the deal on the table, but that simply is not the case given the composition or charge of the Supercommittee.
Voices of Local Nonprofits across America
Finally, some assume that the charitable giving incentive helps only wealthy individuals and large cultural, educational, and medical institutions. We disagree, and based on the outpouring of unsolicited comments we have been receiving from food banks, domestic violence shelters, hospices, mental health providers, children’s theaters, and senior centers, among others, local nonprofits across America also disagree. Real world, community-based nonprofits that have developed their insights through hands-on, “boots-on-the-ground” experiences of serving the most vulnerable in their local communities are writing to us to say the giving incentive is valued and essential. Here is a small sampling of their insights regarding how past recent governmental budget cuts have strained and hurt those they serve in local communities across America:
- "[Our nonprofit in the Southwest] provides an array of services including crisis counseling and emergency shelter for victims of domestic violence and sexual assault. . . . [We have] relied on federal and state resources for many years. but in recent years there have been drastic cuts thereby reducing our level of services. . . . So it is vital that tax deductions from donors remain in place if we are to continue to provide the much needed services for our region."
- “The demand on our services has never been greater than today. Private nonprofits are feeding, housing, and healing those most in need in our community. To take away the tax deductions that make it possible for nonprofits like [our food bank in the rural Northwest] to exist would break these entities, leaving only public services to help the citizens in need. Please don't throw the hungry and homeless under the bus in the process.”
- “75 percent of our funding [a nonprofit in the Southwest focused on independence and resilience of seniors and families] comes from individual donors. . . . When federal and state programs are being cut, our staff and volunteers work one-on-one with individuals. Governments want non-profits to fill the gaps; how can we if you cut the charitable giving tax incentive? Who will take care of our seniors and families if traditional donors no longer give?”
- "Approximately 80 percent of our $ 600,000 budget comes from individual contributions to our organization [a nonprofit in the Midwest]. Without a tax deduction from/for our individual contributions, I would fear that many of them would not make their contributions. Our agency provides much needed services of food and clothing to the poor. Services that are already being cut by doing away with USDA commodity products previously available in our food pantry. We assist over 7,200 individuals with food and a similar number with clothing each year. Our agency would cease to exist without the contributions that are now tax deductible."
- “We [human service/education provider in the South] work with high school dropouts, young people that have fallen through every crack there is. . . . And since government is reducing services to the poorest in our nation, we nonprofits have to take on more—to do that we need the money to keep our doors open. Do not take away a very critical tool in our fundraising toolbox!”
- Human services nonprofit in the Northeast: "With the devastating cuts to human service budgets over the past couple years, and anticipating continued cuts, enacting a law which will reduce the incentive for charitable giving by the general population will compound the effects of those draconian budget cuts. Since the state and federal government no longer feels obligated to help those less fortunate, reducing the options for others to support those individuals makes no sense. If we in the human service field do not care for the disabled and disadvantaged, who will?”
The Best Solution Available: Amplifying Our Voices
Given what is at stake for the people served by the nonprofit community, nonprofit leaders must look through the distracting clutter and see the reality of these potentially devastating threats. It’s time for nonprofits in all subsectors and from across the country to join forces, amplify our collective voices, and speak out for the common good by telling Congress, “help, or at least do no harm.”
The National Council of Nonprofits is proud to be one of more than a dozen national nonprofits and 2,700 community-based nonprofits in all 50 states that—so far—have signed a joint nonprofit community letter to deliver a clear message to the 12 members of the Supercommittee and the rest of Congress: Policymakers of all political stripes are relying on nonprofits to pick up the pieces after all the cuts, reforms, and decisions are made, and we boots-on-the-ground nonprofits are relying—in part—on the charitable giving incentive to accomplish that goal.
We encourage other nonprofits to quickly join this time-sensitive, growing grassroots campaign to remind Congress that the nonprofit community is relevant and that governments at all levels and people across America are relying on nonprofits—human services as well as arts, cultural, education, environmental, faith-based, and health care organizations, etc.—to improve lives in local communities.
-Tim Delaney, President & CEO, National Council of Nonprofits