'Fiscal Cliff' Negotiations Raise Concerns Over Charitable Tax Deductions

As a lame-duck Congress and the White House try to negotiate an eleventh-hour compromise to avoid the so-called "fiscal cliff," a combination of tax increases and spending cuts scheduled to go into effect January 1, many nonprofit leaders are worried that any deal reached by year-end will limit deductions for charitable contributions, mortgage interest, and other popular tax breaks, The Hill reports.

In an effort to avoid the automatic spending cuts and tax increases, both Democrats and Republicans have openly discussed capping the amount of deductions as a way to increase federal tax revenues, while the president has made tax increases on individuals earning $250,000 or more a precondition for a deal. Although the charitable sector has long expressed concern about a cap on deductions, arguing that it would depress charitable donations from the wealthy, a sluggish economy and shaky stock market have imparted a sense of urgency to an issue that was not expected to come into play until the new year. Independent Sector president and CEO Diana Aviv told The Hill that taxpayers anticipating a cap on deductions might hold off on or scale back their charitable contributions as the critical end-of-year giving season approaches.

Assuming that federal spending cuts of any size will result in less money for nonprofits, many nonprofit leaders argue that the sector needs to look to philanthropy to make up the difference. At the same time, attendees at the recent Independent Sector annual meeting argued that nonprofits should tell lawmakers that by protecting the charitable deduction, they are protecting services to the poor. To that end, IS has set up a Web page to make it easy for nonprofits to contact their congressional representatives, while the Charitable Giving Coalition is organizing an effort to bring foundation and nonprofit leaders to Washington on December 4 and 5 for "Project Giving — D.C. Days."

Michigan Nonprofit Association executive director Kyle Caldwell said that nonprofits must have a seat at the bargaining table or risk missing out on advocating for the interests of their organizations and of the people they serve. "You're either at the table or you're on it," said Caldwell. "Right now, we look like the main course."

Doug Donovan. "Charitable-Deduction Limit Would Hurt Poor, Say Nonprofit Leaders." Chronicle of Philanthropy 11/13/2012.