September 14, 2011; Source: The Daily Caller | This Daily Caller article calls President Barack Obama’s proposal to cap itemized deductions as a way to raise revenue “a plan to raise taxes on charitable donations by the wealthy.” That negative characterization seems in line with the reaction of most of the nonprofit sector.
Just about everyone assumes that this proposal isn’t likely to pass, given not only the opposition of charities, but of the real estate industry, which is adamantly against limiting the home mortgage interest deduction even though it benefits owners, not renters, and higher-income homeowners more than lower income ones. Nonetheless, the Caller says that “many nonprofit advocacy groups plan to rally against [the president’s tax proposal] regardless, for fear that Congress will eventually grab funds now donated to charities.”
David Thompson, the vice president for public policy at the National Council of Nonprofits, acknowledges that this notion, first proposed by Obama in connection with health care reform, is unlikely to pass, but he suggests that “a large number of folks are growing concerned” about future pressures on nonprofit revenues. Essentially, the fear is that this proposal might be the tip of the iceberg in terms of the government’s desire to capture nonprofit resources for government purposes. Chris Dubay of the Heritage Foundation notes that even “nonprofits aligned with the Democratic Party . . . all object to it.” As a result, he said, “those organizations are seeing what everyone sees—this isn’t going anywhere.”
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Here’s what concerns us in this analysis: Experts at the Center on Budget and Policy Priorities say that the limit on itemized deductions would cut charitable donations by only 1.3 percent. The Center on Philanthropy at Indiana University predicted a reduction of 2.1 percent. But like many nonprofits, Thompson “worries the losses could be greater,” according to the Caller. Thompson is quoted describing this as a “big deal.” Moreover, he suggests that itemized-deduction caps would “greatly hurt charities’ support for the poor.”
Independent Sector reportedly also opposes the tax plan, but the Caller has IS boss Diana Aviv acknowledging that the proposed tax change would only affect wealthy donors earning $250,000 or more—people who typically give to large charities such as museums and universities and who typically don’t give to anti-poverty charities. In her words, “Very few [of those wealthy donors] are clothing poor people.”
NPQ has written about President Obama’s tax proposal a few times now (here and here and here). Maybe the big ultra-wealthy charities that cater to the rich have something to worry about (because capping the deduction might reveal that the rich actually give because of the tax benefit, not out of pure generosity), but for the bulk of nonprofits, it’s kind of hard to imagine their donors being adversely affected by the president’s proposal.—Rick Cohen