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Obama, Congress consider cutting deductions for donations to charities, churches

Published: Tuesday, Oct. 18 2011 9:47 a.m. MDT

Ruth Hunsaker of Salt Lake City sits as she rings a bell and waits for donations at Shopko on 1300 East and 2290 South in Salt Lake City, Utah, Dec. 10, 2004. (Ravell Call, Deseret News) Ruth Hunsaker of Salt Lake City sits as she rings a bell and waits for donations at Shopko on 1300 East and 2290 South in Salt Lake City, Utah, Dec. 10, 2004. (Ravell Call, Deseret News)

Last year, United Way changed 52 million lives.

Each one had different needs. Some people needed a place to sleep, some needed to see a doctor and some needed help finding a job. But all those needs were met in the same way: through the generosity of good-hearted Americans.

Tuesday, United Way leadership stood before a Senate Finance Committee to plead for those people. Under pressure to deal with the burgeoning national deficit, Congress has been considering more than a dozen different proposals to reduce or do away with tax deductions for donations to charity. If the government eliminates tax breaks for charitable contributions — the lifeblood of organizations like United Way — many worry donors will give less and needy people will go without. Under the most notable proposal, President Barack Obama's 2012 budget, estimates are that charitable gifts could drop by as much as $5.6 billion.

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Talk of axing the tax write-off incentive couldn't come at a worse time for the less fortunate. Need increased during the recession while donations to charities floundered. In the meantime, with government social programs on the chopping block, the nonprofit sector is under pressure to pick up the slack.

"It's a triple whammy for those trying to help the poor," said Kirsten Gronbjerg, Efroymson Chair at the Center on Philanthropy at Indiana University. "Government programs are losing funding. The recession is still swinging, unemployment is still high and, even with a tax incentive, charitable contributions are hard to come by."

Elder Dallin H. Oaks of the Quorum of the Twelve of The Church of Jesus of Christ of Latter-day Saints also testified before the Senate Finance Committee, asking the senators to maintain the deductions for charitable donations because they are "vital to the private sector that is unique to America." He was joined by a professor of ethics from a Southern Baptist seminary and experts from the Congressional Budget Office and the Urban Institute. U.S. Senator Orrin Hatch, R-Utah, ranking member of the Senate Finance Committee, put together the lineup of speakers.

"Americans in crisis are turning for help in ever greater numbers to churches, charities, shelters and other social welfare groups," Hatch said. "We should make no bones about it. The changes being discussed today are radical ones. There has been a charitable deduction in the tax code for nearly a century and the proposals on the table would undo it."

Caring for America's poor

More than 1.5 million nonprofit organizations operate in the United States, according to the National Center for Charitable Statistics. In addition to feeding the hungry, clothing the naked and sheltering the homeless, nonprofits shoulder considerable responsibility for providing education, health care and access to the arts, Gronbjerg said. A majority of Americans — 70 percent — say they trust nonprofits to solve social problems more than they trust the government, according to American Express's annual survey "Perspective on Nonprofits."

To run their daily operations, nonprofits count on an estimated $300 billion in private charitable contributions, according to the Independent Sector, the nation's leading coalition of non profits and corporate giving programs. Seventy-five percent of those donations come from individual donors. Seventy percent come from people who claim charitable deductions.

"Americans have always valued these traditions of volunteerism, philanthropy and community," said Senator Max Baucus, D-Mont., chairman of the Senate Finance Committee. "For these reasons, the charitable deduction and nonprofit exemption were incorporated into our tax code. Today's nonprofit organizations help to carry on these values. Their work helps improve all of our communities."

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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