Charities brace for 'triple whammy' of national debt fixes
Even if Congress and the White House cut a budget deal this year, some charities fear getting dropped off a fiscal cliff of their own.
Options for lowering the national debt could hit nonprofit groups, such as the United Way, with a “triple whammy” of reduced federal spending, increased demand for services and fewer donations as a result of tax-code changes.
Of particular concern for charities are proposals to scrap or cap the 95-year-old charitable donation tax deduction. In 2010, 31 percent of taxpayers in Pennsylvania claimed the deduction for $5.8 billion in donations, said Tony Ross, president of the United Way of Pennsylvania.
Of that, $2.2 billion came from households that earned $200,000 or more, according federal data.
“You'll hear policy-makers say, ‘We don't have enough money in government (to fully fund social programs), and we hope charities can pick up some of the slack to meet those needs.' Well, if you want us to pick up the slack, don't inhibit the ability to ... raise the necessary funds,” Ross said.
Taxes and tax rates are the central issue in the standoff between Democrats and Republicans over how to control the federal debt.
Congressional Republicans want to limit or eliminate deductions rather than raise rates. Sen. Bob Corker, R-Tenn., estimated that capping tax deductions at $50,000 would generate $749 billion for the government. President Obama proposed capping the charitable donation deduction at 28 percent of the donation's value, rather than 35 percent.
“The nonprofit sector relies significantly upon charitable donations. And wealthy individuals are a good part of those donations,” said United Way of Allegheny County President Robert Nelkin.
The White House released a report this month estimating that a $50,000 cap on deductions would reduce charitable giving by as much as $150 billion over 10 years. Harvard University economist Martin Feldstein estimated Obama's plan would reduce charitable giving by about $7 billion a year.
“So on top of the triple whammy — more people in need, less charitable donations, and less government support — if you cap charitable donations, you're going to make the situation even more dire for nonprofits,” Nelkin said.
The United Way of Allegheny County relies on donations for all of its $32 million budget, 99 percent of which stays in the county, Nelkin said.
U.S. Rep. Mike Doyle said the first place to get revenue should be higher tax rates for the wealthy.
“Then, there are lots of tax preferences I think we should look at during tax reform, but deductibility of charitable donations should not be one of them,” said Doyle, D-Forest Hills.
Budget negotiations have taken place primarily between Obama and House Speaker John Boehner, R-Ohio, and included a White House meeting on Thursday night.
Until they reach a deal, it's premature to offer opinions on what might be in it, said Julia Thornton, a spokeswoman for U.S. Rep. Mike Kelly, R-Butler.
“Rep. Kelly is not involved in the fiscal cliff negotiations and finds it counterproductive to comment on hypothetical scenarios,” she said.
Mike Wereschagin is a staff writer for Trib Total Media. He can be reached at 412-320-7900 or email@example.com.
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