The charitable sector has reason for at least some guarded optimism after President Barack Obama’s State of the Union address last night, when he proposed various initiatives aimed at growing the middle class and stemming the growing divide between rich and poor.
The president proposed increasing assorted tax credits and creating others while also treating inheritances as capital gains – a move that likely would spur planned giving.
“If that were to become law, that definitely would drive planned giving,” said Diana Aviv, president and CEO of Independent Sector (IS), a Washington, D.C.-based coalition of charities. The capital gains on inheritances would not return planned giving to levels seen under previous estate tax rates but it certainly would be more than it is now. “The way they approached it, it mitigates the argument that people are being taxed twice,” she said, since on capital gains, you haven’t actually paid taxes on it.
“We’re in favor of a much broader tax anyway,” Aviv said. One of the ways to narrow the growing income divide is to have the opportunity increase taxation of estates of people who’ve already passed on and who “have had the benefit of great wealth.” It’s also consistent with Independent Sector’s position for people to have the opportunity to give to charitable purposes instead of paying taxes on it. “We think that’s a brilliant alternative,” she said.
Among the proposals presented last night:
- Increase the earned income tax credit (EITC) for childless taxpayers, make permanent increases that are scheduled to expire by 2018, and boost the income cutoff at $120,000.
- Create a $500 second-earner tax credit for families in which both spouses work, phased out for couples earning $120,000 to $210,000.
- Raise the top tax rate on capital gains and dividends to 28 percent for taxpayers with incomes of more than $500,000.
- Consolidate and expand education tax benefits, increasing the refundable portion of the opportunity tax credit permanent to $1,500
Both the president and Congress appear to be interested in tax reform but Aviv hopes that “simplifying the tax code,” as lawmakers have said, doesn’t mean doing away with all deductions. “Simplification should not be a simpleton response but a serious response as to what makes sense to simplify, without compromising the incredible, generous impulse of Americans,” she said.
“My understanding is that charitable contributions are exempt from the President’s capital gains proposal. If so, that’s good news that the Administration understands the value of these donations,” said Association of Fundraising Professionals (AFP) President and CEO Andrew Watt. “I was equally pleased that President didn’t mention the 28 percent cap on the charitable deduction and hope it won’t be included in his upcoming budget,” he said.
“These are good first steps, and I encourage the President to continue in this vein and create a holistic approach to nonprofit policy that harnesses the power of philanthropy,” Watt said.
The president previously has proposed limiting the charitable deduction at 28 percent for high-income earners, a position that Aviv said the administration has maintained and where IS differs.
YWCA of the USA President and CEO Dara Richardson-Heron, M.D., pointed to two proposals that she believes will help women and families with increased opportunities to succeed economically: expansion of the Child Care Tax Credit and a $60 billion program to make community college free (for those who earn at least a 2.5 GPA).
“These two initiatives can reduce barriers to advancement for middle and lower income women and families by lowering the high burden of child care costs and student loans,” she said. “Overall, YWCA USA advocates for a fair and reasonable budget that supports women and their families. The dual approach of fair workplace policies and a strong social safety net provides working women and their families with critical tools for financial stability,” Richardson-Heron said.
There were many items in the State of the Union that Aviv said IS constituents would be happy about but the next step is to work with both sides of the aisle in Congress as well as the administration “to articulate the points of view of how best to achieve these broad goals on a bipartisan basis.”
“There were lots of proposals that the president made that tilt in the direction that would help poor people,” Aviv said, including tax breaks for working-class families and helping workers save for retirement. President Obama didn’t tackle entitlements or the battle between entitlements and discretionary spending as revenue increases. “As we move toward responsible spending, we need a balance between cuts and responsible revenue increases,” she said.
“Some charities’ leaders will wince over tax reform discussions. It’s important that nothing is enacted that would discourage giving to nonprofits or be harmful to charitable giving, especially at a time when charities are asked to do more with less,” said Neal Denton, senior vice president, chief government affairs officer at YMCA of the USA.
The president’s tax proposal “recognizes the incentives for charitable giving that are inherent in making donations fully tax deductible,” said William Daroff, senior vice president for public policy and director of the Washington, D.C., office for Jewish Federations. “Providing an exemption for charitable contributions has always been a key component of our federal tax code, and we are encouraged that President Obama is protecting this important giving incentive.”
Still, with comprehensive tax reform a stated priority of both the president and the Republican-controlled House and Senate, Aviv said it presents opportunities and risks to the charitable sector. “Any tax reform proposal that serves as a disincentive to charitable giving could undermine the ability of nonprofits to deliver on their missions and commitments to improving life,” she said.
The Y’s Denton said education advocates in particular cheered when the president said affordable, high-quality childcare is “not a nice-to-have – it’s a must-have.”
United Way Worldwide U.S. President Stacey D. Stewart called on President Obama to go further when it comes to youth employment. “The economy is getting stronger, but it’s also true that twice as many youth are unemployed than adults in the U.S., and even more for young men and women of color. As part of America’s strategy to sustain a strong economy and boost higher education, the President should champion investment in solutions that work to help employ youth, like evidence-based apprenticeships, internships, and work-study programs,” she said.
“Youth employment is a critical issue gaining momentum, with leaders like the World Bank, Clinton Global Initiative, the U.S. Chamber of Commerce Foundation and many others honing in on youth ages 16-24 who are not in school or employed. The link between jobs and education is a clear one, and leaders of all sectors should reinforce that investing in education, skills training and workforce development pays for itself in the long- and short-term,” she said.
Wider Opportunities for Women (WOW), a national nonprofit promoting empowerment, equity and economic security, welcomed the president’s support for paycheck fairness and equal pay for equal work, minimum wage increases, paid sick days legislation, and paid family leave for new parents and all working families. “All of these proposals can help generate rising incomes and provide access to economic security for everyone who makes the effort,” CEO Amanda Andere said in a statement.