'Fiscal cliff' effect on nonprofits remains to be seen, Laughlin Center director says
While there is some relief among nonprofit leaders following Congress' passage of laws that still encourage charitable giving, concern remains over how donations could be affected this year.
Less take-home pay for millions of Americans could translate to less giving to charities and perhaps, a greater demand for services those charities provide, some observers say.
Employees as early as this week could begin seeing lower take-home pay as the result of the 2-percent Social Security payroll tax increase, which could have a greater impact on charitable donations throughout the year, said Doug Florey, executive director of the Laughlin Children's Center.
Higher-income Americans — those with household incomes of more than $1 million — will shoulder more than 37 percent of the increased taxes, according to the Tax Policy Center.
“It's not that those changes will make an impact on our taxes for the year, but those changes are going to make an impact on our pocketbooks,” Florey said.
The American Taxpayer Relief Act of 2012 kept the country from going over the so-called “fiscal cliff,” but some of the impact on nonprofit groups remains to be seen, Florey said.
“Nonprofits are as puzzled as the rest of the nation about what these changes really mean,” he said. “It's too early to tell.”
For many taxpayers, tax cuts created under President Bush's administration were extended.
The deal also delayed major funding cuts to government-funded programs.
Charities amount to a $1.4 trillion economic sector, employing one of every 10 workers nationwide, said Scott Leff, associate director of Robert Morris University's Bayer Center for Nonprofit Management.
“Basically, everyone in the country is affected by the services nonprofits offer,” Leff said.
“It‘s not only the safety net agencies; it's the health system, the educational system, our arts and culture, our libraries, houses of worship.”
Along with direct impact to paychecks, Florey said, he worries changes to larger tax brackets could have an adverse effect on giving as the fiscal cliff deal raised the tax rate from 35 percent to 40 percent on estates of $5 million or higher.
Estates of smaller amounts, and for couples with a combined estate of up to $10.5 million, will be free of federal taxes.
“We get some major gifts, but the lion's share are two-digit and three-digit gifts,” Florey said.
“I don't think those donors are going to be the ones affected. It's going to be the five- and six-digit gifts we could lose out on.”
While Florey said he isn't sure of the impact changes will make for the year ahead, Laughlin Center already saw year-end donations in 2012 slip.
“We don't have hard numbers yet, but it looks like it's going to be down,” Florey said.
“I can't blame donors because up until the 11th hour and, really, past the 11th hour because it happened the next day, folks just didn't know what was going to happen.”
Bill Zlatos contributed to this report. Bobby Cherry is a staff writer for Trib Total Media. He can be reached at 412-324-1408 or firstname.lastname@example.org.