Obama, Congress consider cutting deductions for donations to charities, churches
As a nation, the United States ranks fifth in the world for generosity, according to the World Giving Index. But charitable giving took a hit during the recession. While unemployment rocketed from 4 to 10 percent from 2008 to 2009, charitable giving dropped 20 percent, according to the Internal Revenue Service. In a 2010 Harris Poll survey, 31 percent of Americans indicated they have reduced the size of charitable donations or are giving to fewer organizations because of hard economic times.
"People are struggling and donations are hard to come by," said Steve Taylor, vice president of public policy at United Way Worldwide. "It's the people at the bottom of the economic spectrum who were already hurt the most by the recession and, if these plans go through, they'll be the ones to suffer again."
Predicting the future
A George Washington University analysis estimates nonprofits could lose between $2.9 billion and $5.6 billion in donations if Obama's budget proposal for fiscal year 2012 goes through. Depending on how much an organization relies on private donations, this could translate into losses as small as .1 percent or as great as 8 percent.
At United Way, which gets 95 percent of its funding from private donations, experts estimate Obama's plan would result in a 2.5 percent drop in contributions. That would mean cutting back services like job training or child care to 1.3 million people, Taylor said.
"Is this some sort of death blow to United Way? No," Taylor said. "But this isn't about United Way. This is about the people who benefit from our work. And this is really going to hurt those people directly."
The power of the tax deduction to encourage charitable giving is illustrated by the timing of donations, said Sandra Swirski, executive director of the Alliance for Charitable Reform. More than 20 percent of annual online charitable donations are made on December 30 and 31 — the deadline to get a tax deduction.
"Giving is a personal choice," Swirski said. "That's the beauty of living in America. You can decide where to give. That said, the charitable deduction is definitely influencing donors."
When an individual in the highest tax bracket donates $1,000 to charity, they save $350 on their taxes. Swirski sees this as a benefit. Instead of giving $350 to public good through taxes, the needy benefit from a ful1 $1,000. Others argue, though, that the money might be better spent in the hands of the government.
Obama has proposed changing the charitable deduction six times during his presidency. Charitable deductions cost the government roughly $187.5 billion in potential revenue during a five-year period, according to the Joint Committee on Taxation.
Looking at the issue from this perspective, Uwe E. Reinhardt, an economics professor at Princeton University, argues it's the government's money — and not the donors' — that's going to charity. If someone donated $10,000 to charity, they essentially donated $5,500 of their own money.
"The other $4,500 would come from fellow taxpayers who might not even know your favorite charity or, if they did, might not much like it," Reinhardt wrote in a blog post for the New York Times.
Obama has also said reducing the tax deduction would be more fair to lower-earning families who make charitable gifts but get a smaller tax deduction.
"When I give $100, I'd get the same amount of deduction as when some — a bus driver who's making $50,000 a year, or $40,000 a year — give that same $100," he said during a press conference pushing the proposal.
Not all of the proposals on the table are as drastic as Obama's plan. United Way, though is fighting them all on principle.
"The problem is, once you go down this road it's just the beginning," Taylor said. "Once they start whittling away at nonprofits, the deduction is going to keep getting reduced and reduced and reduced."
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