In today’s extreme political environment, it’s hard to know who your friends are and even harder to rely on them.
President Obama began his presidency supportive of nonprofits. He publicly declared their importance to our communities. His administration provided grants for nonprofits that encouraged and assisted them in effectively tracking the impact of their efforts.
But the president has now proposed for the fifth time a reduction of the charitable tax deduction. A smaller tax deduction for charitable contributions (from a 35 percent deduction to 28 percent) would impact families with annual incomes of $250,000 and above and individuals who make $200,000 or more.
Published estimates of the financial impact on nonprofits of this reduction range from $5 billion to $9 billion annually. It will be felt the most in large, well established institutions — hospitals, universities and major charitable nonprofits — that traditionally rely on wealthy donors.
The fact that most donations to nonprofits come from individuals with much more modest incomes doesn’t lessen the impact of a reduced tax deduction. While major donors make up only a small percentage of total American households, their gifts make up almost 50 percent of the annual donations claimed as charitable deductions.
The president can’t be unaware of the impact of this loss on nonprofits’ ability to do their work. President Obama’s apparent shift in support is actually part of his strategy of engaging those who will face the most painful cuts. He wants the nonprofit sector to help do the political work of pushing for other federal budget revenue sources to avoid cuts to their own programs.
This strategy was signaled with Obama’s suggestion to nonprofit leaders during December’s fiscal cliff negotiations that they push for increased taxes on the wealthy. The president and many charity advocates understand that greater taxes on the wealthy can help prevent deep cuts in government spending that will be deleterious to nonprofits, as government grants and contracts are nonprofits’ second largest revenue source.
Politically, the president needs all the voices he can get to strengthen his chorus for increased taxes on the wealthy. But highly visible nonprofit leaders are not in a position to push for tax increases on their best donors. And most are focused on trying to protect the tax deduction.
Interestingly, two Republicans appear to be coming to the aid of nonprofits on the tax deduction issue. Senators John Thune, R-S.D., and Roy Blunt, R-Mo., have sponsored an amendment that states it’s designed “to protect charitable organizations from being used as a source of revenue to pay for more spending by protecting the deduction for charitable giving from being capped, limited or eliminated to pay for new spending as part of any tax increase.”
While some nonprofit associations and advocacy groups have praised this proposal, others have suggested there’s more to it than support for nonprofits. They feel the move is nothing more than part of a larger attempt to prevent major tax increases, with the tax deduction proposal obfuscating the proposed amendment’s real motive.
In either case, few political pundits give the amendment a good chance of passing. This leaves us at an impasse again, and your voice is still needed to let your political leaders know where you stand.
Sarah Todd is the founder of Change Pioneers, a resource on effective social change leadership. She can be reached at 912-224-2120 or toddsar@gmail.com.