Charitable Giving - a Casualty of the Fiscal Cliff?

The Fiscal Cliff is topping the headlines these days.  A part of that discussion involves potentially severe reductions in certain deductions, like the charitable contributions deduction, in order to eliminate or minimize rate increases.  At the front of the debate is the White House, two Presidential advisors of which recently posted a blog entry entitled "Why Taking Tax Rates Off the Table Threatens Non-Profits and Charitable Giving."  Here is a small abstract from that blog entry:

But what is clear is that proposals that take tax rates off the table would threaten donations to universities, non-profit hospitals, social services providers, arts and cultural institutions and other nonprofit organizations.  This is because – to make the math work – these proposals rely on hundreds of billions of dollars of revenue that would result from drastically cutting or eliminating the charitable deduction as we now know it.

Currently, the tax code encourages gifts to charity by allowing taxpayers to claim itemized deductions for charitable giving. But – as a new report by the National Economic Council (NEC) shows, the most prominent dollar cap proposals would effectively eliminate the charitable deduction for up to 13 million households and for as much as 60 percent of currently deductible giving.

Using Congressional Budget Office assumptions, the NEC estimates that a $50,000 cap would reduce charitable giving by about $150 billion over 10 years, while a $25,000 cap would reduce giving by about $200 billion. Even a $25,000 cap that applied only to high-income households would reduce giving by at least $10 billion per year. As the report discusses, a cap could impact nonprofit organizations in every sector and in every state.

In a recent article in the Tulsa World, the newspaper reported that last week approximately 225 nonprofit representatives travelled to Washington "warning elected officials that tampering with the charitable tax deduction would limit or even eliminate their ability to serve those in need."  A similar article was published by The Oregonian, titled "Oregon charities give good reasons for dodging fiscal cliff."

As reported by the Chronicle of Philanthropy, the Independent Sector published a 2-page advertisement in Politico, directed to President Obama and Congress and President Obama, entitled “Don’t push charities over the fiscal cliff.”  Another large nonprofit association, the American Hospital Association, sent a letter to Senate Majority Leader Harry Reid urging him to preserve the charitable contributions deduction.  

The Wall Street Journal reported that the lingering uncertainty around the negotiations between President Obama and Congress is resulting in donors making contributions to "charitable-gift funds" (i.e., donor-advised funds) prior to the end of the year, allowing them to take a deduction in 2012 but delay giving decisions until a later time.  Specifically, fear surrounding Congress's potential cuts or caps on charitable contributions for 2013 is leading to urgency to take advantage of deductions under current law.

[See also articles in Chronicle of Philanthropy, USA Today, New York Times (on role of charity in society)]

NAM