11 Mar The Obama Budget Will Hurt Churches and Non-Profits
Winston Churchill once said, “We make a living by what we get; we make a life by what we give.”
Indeed, Americans contribute philanthropically for many reasons — among them, support for science, religion or arts, as well as a desire to make the world a better place. Giving infuses meaning into our lives.
But charity is also powerfully motivated by something far more mundane: the tax deduction, which has recently found itself on the chopping block of President Barack Obama’s controversial $3.6 trillion budget.
Obama’s plan aims to do two things. First, it will increase the highest marginal rate from 35 percent to 39.6 percent for couples earning more than $250,000 a year.
Second, it will cap the charitable deduction at a 28 percent rate.
To illustrate this, under the current tax code, deductions are taken at the taxpayer’s highest marginal rate. So a woman in the highest income bracket who donates $5,000 to her church or local theater would pay $1,750 (35 percent of $5,000) less in taxes — assuming she’s not snared by the alternative minimum tax.
But under the president’s proposal, the same woman would be able to deduct only 28 percent of her contribution; the same $5,000 gift would yield a tax savings of only $1,400.
Thus, families in higher tax brackets will see their marginal rates grow while their deductions shrink.
This double whammy has ignited a firestorm in the philanthropic world, raising concerns among nonprofits and donors alike. Amid an economic downturn that has shriveled endowments, slowed contributions and intensified the need for the services these groups provide, discouraging giving is simply perverse.
One nonprofit executive told The Wall Street Journal “I think that’s the wrong loophole to close if you’re going to close a loophole in these times.”
Another remarked to The New York Times that “in these hard economic times, we need to make sure tax and regulatory policy encourages growth in philanthropy.”
William Daroff of United Jewish Communities, an umbrella organization for Jewish philanthropy, said that “at a time when charities are literally going bankrupt, are seeing a huge increase in the demand for social services and a simultaneous decrease in resources to fund programs, governmental policy should be to incentivize charitable donations — not creating more reasons for donors to forgo making contributions.”
Senate Democrats like Max Baucus (D-Mont.) and Robert Menendez (D-N.J.) have expressed opposition. And House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) said, “I would never want to adversely affect anything that is charitable or good.”
But some groups blithely contend that the wealthy will keep giving regardless of tax implications.
We strongly disagree. A study conducted by Bank of America and Indiana University’s Center on Philanthropy found that curtailing the charitable tax deduction would “somewhat” or “dramatically” decrease the contributions of 47 percent of affluent donors. The study also reckoned that Obama’s budget would cut donations nationally by $10 billion to $20 billion per year.
Moreover, while most nonprofits do rely on major donors, they cannot survive without the many middle- and upper-middle-class givers at the center of any philanthropic pyramid. Obama’s plan will undoubtedly affect them.
We asked Daroff whether the optimists were correct. He pointed out that even under the rosiest assumptions by the Center for Budget and Policy Priorities, a group close to the Obama administration, the budget would spell billions in lost contributions.
In addition, it’s no surprise that Americans give to charities far more generously than do Europeans. The heavy tax burden in European countries dissuades its citizens from donating, both since they have less money to give and because they assume the government is taking care of the needy.
We fervently hope the Obama administration does not seek such a profound metamorphosis of the philanthropic sector here in the United States.
American generosity is good in and of itself. We try to impart a sense of giving to our children as they give old toys away or donate to canned food drives — a culture that traverses the generations of many families, not just the wealthiest ones. But we simply cannot continue to stress how it’s “our responsibility” to help the less fortunate when the government subsumes that role.
Like many Americans, we encourage the president to change his mind and enable us, per Churchill, to keep making our lives by giving.
Debra Rappaport Rosen is a professional nonprofit fundraiser; Michael M. Rosen, her husband, is an attorney and POLITICO contributor. They live in San Diego.