President, Again, Attacks Charitable Deduction

President Barack Obama’s federal budget proposal includes a reduction in the deduction for charitable gifts for the fifth year in a row. But, during an interview last night on Fox News, Rep. Paul Ryan (R-Wisc.) agreed with the words used by an interviewer that the budget was “dead on arrival” when it is discussed in Congress.

The budget proposal limits the value of the charitable deduction to 28 percent for high-income taxpayers. The budget proposal does request $10 million for the Corporation for National and Community Service’s Volunteer Generation Fund (VGF) and recommends that Congress rename the Fund in honor of President George H. W. Bush.

“Each year — and sometimes more than once — the President has proposed cutting the charitable deduction, despite resounding opposition from the American public and Congress,” said Sandra Swirski, executive director of The Alliance for Charitable Reform (ACR) in Washington, D.C.  “This year, the cut is even deeper. With the January 1st tax hike, the gap between tax rates and the charitable deduction rate is wider than ever and that will translate into less giving. Not only is this harmful to giving, which will cost charities across the country billions of dollars, but it is a dangerous precedent for the federal government to set.”

“The charitable deduction is not a loophole, it’s a lifeline,” she said. “It’s different than other deductions and credits because it encourages individuals to give their money away for the benefit of others. We urge Congress to preserve the charitable deduction as budget negotiations and tax reform move forward to protect those who are most in need of charity.”

Leaders of the Association of Fundraising Professionals (AFP), the world’s largest such association, also weighed in on the issue. “We need to have many conversations in this country. Those will certainly include fiscal matters. But when it comes to the charitable sector, we need context and an understanding of the charitable deduction’s uniqueness and impact on our communities,” according to a statement from AFP President Andrew Watt, FInstF, and the chair of the AFP Board of Directors Bob Carter, CFRE.

“That understanding is evident in the administration’s proposed ‘Buffett rule’ that specifically protects the charitable deduction from limits on itemized deductions for higher income taxpayers. We applaud this recognition of the charitable deduction’s fundamental and distinctive value,” according to Watt and Carter. “However, the administration also includes a proposal in the budget that would cap all itemized deductions — including the charitable deduction — at 28 percent for certain taxpayers, which would reflect a potential loss of $80 billion in charitable contributions over a 10-year period at a time when direct investment in communities is vital. We must remember that the charitable deduction actually helps the government in providing support for critical programs and services during challenging times. Altering the deduction means less giving — and in turn, less capacity for charities to provide those programs and services.”

According to a statement released by Independent Sector, “It has also been suggested by some proponents of limiting the charitable deduction that any resulting decline in giving would be felt primarily by the arts, universities, and other organizations perceived to be the exclusive beneficiaries of gifts from wealthy donors. A 2012 study by the Center on Philanthropy at Indiana University found that 79.3 percent of high-net-worth households, those defined as having annual income greater than $200,000, donated to basic needs charities in 2011, with their average gift to basic needs organizations increasing by 17.5 percent since 2009. The reality is that Americans in every income bracket give generously to all types of charitable organizations, and reducing incentives to give will hurt all charities and the causes they serve.”

The sector should be disappointed but not surprised by the president’s budget, according to William Daroff, vice president for Public Policy and director of the Washington, D.C., office The Jewish Federations of North America. “The charitable tax deduction is essential to ensure that charities are able to raise the funds necessary to help those in need. Limiting the deductibility of charitable contributions will definitively result in less giving and therefore place a stumbling block in front of the ability of charities to feed the hungry, shelter the homeless, and heal the sick.”

While there are the expected players couching disappointment in muted tones, the sentiment is not unanimous. “By putting Social Security and health care reforms on the table, President Obama’s budget opens the door to fresh discussions about a comprehensive long-term plan that finally gets America’s fiscal house in order,” said Michael Peterson, president of the Peter G. Peterson Foundation in New York City.

“Now that we have budgets from the House, the Senate and the Administration, it is in the best interests of the country for Democrats and Republicans to re-double their efforts to overcome their differences. The goal of any sustainable fiscal policy is to stabilize debt as a share of the economy and put it on a downward path. While the inclusion of these reforms is an important step, additional reforms beyond the measures in the President’s budget will be needed to stabilize the debt over the long term,” said Peterson via a prepared statement.

The RATE Coalition in Washington, D.C., approves of “President Obama’s call for revenue-neutral corporate tax reform. “It is another sign of the strong bipartisan support that exists for comprehensive tax reform. It is also a significant step towards the successful completion of a tax reform package that boosts economic growth and job creation by broadening the base and lowering the corporate tax rate to an internationally competitive level,” according to a statement released by RATE, coalition of 30 companies and organizations advocating for corporate tax reform.

According to a statement released by The White House, “The President believes we must invest in the true engine of America’s economic growth – a rising and thriving middle class.” He is focused on addressing three fundamental questions: How to attract more jobs to the U.S.; How to equip people with the skills needed to do the jobs of the 21st Century; and, making sure hard work leads to a decent living.

Points of Light Foundation in Atlanta, Ga., applauded the release of the president’s budget proposal when it came to its $10 million for VGF.

“My family and I are humbled by the President’s recognition of dad and his lifelong devotion to service,” said Neil Bush, chair of the board of Points of Light, the largest organization in the world devoted to volunteer service. “The George H. W. Bush Volunteer Generation Fund will further expand the scope and effectiveness of volunteerism.”

“I can’t think of a more perfect pairing than the Volunteer Generation Fund and President George H .W. Bush,” said Points of Light CEO Michelle Nunn. “This is both smart policy and a well-deserved honor for one of our country’s most remarkable public servants and a leader of the modern volunteer service movement.”

Said Nunn: “We hope that Congress will embrace the President’s budget request for VGF.  With state after state anticipating cuts in critical social services and as the nonprofit sector plugs away on the front lines of an embattled economy, it is critical that the federal government underwrite the one resource that is low-cost, plentiful, effective, and provides a dramatic return on investment — volunteers.”