November 28, 2012
By: Richard Land
If Americans are not vigilant, they may well wake up from their New Year's celebrations to discover that while they were cleaning up from Thanksgiving and preparing for Christmas festivities their lame duck Congress combined with the Obama administration to fashion a draconian threat to the religious and non-religious charities they cherish.
In recent weeks, both Republican and Democrat leaders have surfaced a dangerous and destructive idea in their desperation to avoid the fiscal cliff facing our nation on January 1, 2013.
If nothing is done to prevent it, on that date "sequestration," the Congress and Obama administration's jointly engineered fiscal monster that makes crippling cuts of the defense budget and other federal spending cuts, takes effect.
Coupled with the simultaneous expiration of all the Bush era tax cuts, the resulting financial "double-whammy" could end the extremely fragile and anemic economic recovery and plunge the country back into recession. Desperate to avoid this calamity, members of both parties are now floating the very dangerous idea of further capping deductions for those tax-filers (approximately one third of all returns filed) who itemize deductions. People in the upper income levels are already limited regarding their charitable giving relative to their Adjusted Gross Income (AGI), but current proposals would be radically more restrictive.
One of the oldest axioms of public policy is, "You reduce activities you tax and you increase activities you subsidize in the tax code." For a century now, American government has greatly increased charitable giving by allowing people to deduct their contributions from their taxable income. American charitable giving, and the nonprofit civil society institutions such giving has funded and enabled to flourish, are the wonder and envy of the rest of the world.
By all means we should reduce tax loop holes and extravagant personal deductions. Our entire federal tax system is irredeemably broken and must be completely transformed. However, charitable deductions are fundamentally different than all other itemized deductions such as mortgage interest. Deductions for donations to charity incentivizes giving to others and certainly raises more money for charitable institutions (religious and non-religious) than would otherwise be generated. A recent study revealed that one third of donors would give less if the tax deductibility of charitable giving were to be eliminated. This is particularly true of those most likely to give five and six figure donations, the kind of donations nonprofits call "sustaining gifts."
At a time of severe economic dislocation, when the people's demand for the services of charitable institutions is particularly high, it would be extremely counterproductive and illogical to implement tax policies which would result in crippling cuts to the budgets of charitable institutions, rendering them far less able to help the most vulnerable in our society.
The Charitable Giving Coalition, which includes more than 50 of the nation's biggest charities and nonprofits, including the American Red Cross, Goodwill Industries, The Salvation Army, United Way, and Volunteers of America, sent President Obama a letter November 14 taking issue with his proposed additional cap on charitable deductions. They pointed out the economic impact of nonprofits in their letter, stating, "Nonprofits generate $1.1 trillion every year in the form of jobs and services. One in 10 U.S. workers are employed by the nonprofit sector, which provides 13.5 million jobs, or approximately 10 percent of the country's work force." They went on to point out that, "Data suggests that for every dollar a donor gets in tax relief for his or her donation, the public typically receives three dollars of benefit. No other tax provision generates that kind of positive public impact." Indeed!
At a time of a seemingly ever expanding, but financially strapped, federal government, why would that government seek to weaken and eviscerate the civil society nonprofits so necessary to act as a gentle buffer between government and individual citizens in need?
The proposal to further cap charitable deductions in the federal tax code is a threat aimed like a dagger at the heart of America's charitable nonprofit entities, secular and religious. It will weaken most, kill many, and harm all.
The Charitable Giving Coalition's letter to President Obama reminds him that "three out of four Americans . . . do not favor cutting, capping, or eliminating the charitable tax deduction." Our nation's leaders in the Executive and Legislative branches of our government should listen to the people's wisdom and reject this truly dangerous and damaging idea.
All Americans concerned about the enormous danger that would be done by such a reckless and short-sighted policy should take time from their holiday activities to contact their elected representatives in Washington and tell them to cease and desist from such malignant foolishness.