Entries in Charities (2)


Fiscal Cliff Deal Leaves Charities’ and NGOs’ Fears Unresolved

Architect of the Capitol(WASHINGTON) -- The fiscal cliff agreement passed late Tuesday night extends some much-needed benefits and tax breaks, but looming spending cuts leave minority and poverty-stricken communities in limbo.

Leaders in the nonprofit community praised the bill’s handling of some aspects like the charitable-giving tax deduction. But in other areas, they said they felt it failed to support them, and by extension, left poverty-stricken Americans who depend on their services in a state of flux.

Though it would have put billions of dollars back in the budget, Congress voted this week to keep the charitable deduction with one change: The deal brings back a limit on how much taxpayers can deduct.

The Limitation on Itemized Deductions, commonly called the "Pease Limitations" after the congressman who created it, was part of the 1986 tax reforms and reduced deductions made by high-income earners. Tuesday’s deal defines that threshold as those making $300,000 or more for couples and $250,000 for unmarried individuals.

But Tim Delaney, president and CEO of the National Council of Nonprofits, called the amount it shaves off wealthy Americans' itemized deductions nothing more than “a haircut.”

“On the whole nonprofits, for the time being, are looking at [keeping the charitable deduction despite the cap] as a disaster averted, because there were proposals to substantially take away charitable giving,” Delaney said.

Maya Wiley, president of the Center for Social Inclusion (an advocacy group focusing on eliminating social inequalities), said the extension of the earned income tax credit was especially important for African-American households, whose real median income had not recovered to pre-recession levels at the beginning of 2012, according to the Census Bureau.

She also praised Congress for extending unemployment benefits.

The unemployment rate for black Americans in November was 13.2 percent, 5.5 points higher than the national average and 6.4 percent more than among whites.

But overall, Wiley called the deal “a fiscal fiasco” for its failure to address spending cuts that would mean a steep drop in discretionary spending.

Title I, a Department of Education initiative aimed at improving academic achievement in disadvantaged communities, is an example of a program that would face cuts under the sequester, according to Wiley.

Said Wiley, “1.6 million kids will lose funding just from Title I alone.” Of that 1.6 million, Wiley said 1 million are black and Latino. “We haven’t had a sufficient conversation about who really is going to get hurt by that.”

Like a sword of Damocles, these prescribed cuts hang over the heads of charities and NGOs, keeping the nonprofits in a state of instability, not knowing if the local governments who hire them to serve their neediest residents will have the funding necessary to pay for their work two months down the road, according to Delaney.

The members of Congress who voted to put the cuts off until March “seem disconnected with the real work that’s going on in their home states and their districts,” Delaney said.

“The key is for them to recognize how their failure to act has created a dark cloud over the ability of community-based nonprofits to function, that the uncertainty of whether funds will flow to the states and to the local governments to meet their needs is causing consternation and freezing the ability of people to make informed decisions out in the field,” Delaney told ABC News by phone Wednesday.

But Fergus Hodgson, director of fiscal policy studies at the John Locke Foundation (a free-market think tank based in North Carolina), said the struggles experienced by nonprofits is “such a small drop in the ocean” in comparison with what he sees as the real problem at hand: reforming programs like Social Security and Medicare to curb the nation’s growing debt.

“It’s about reforming our future obligations or addressing them,” Hodgson said. “There was absolutely no change to those forms of entitlements, and as we speak those entitlements or the deficits associated with them are just continuing on all the time.”

JD Foster, a tax economist at the conservative Heritage Foundation, blamed President Obama for the lack of entitlement reform in the final bill.

“We had an opportunity to cut spending,” Foster said. “And the president said no.”

There was one thing actors on both sides agreed on: The deal left the country in a state of uncertainty instead of putting Americans’ fears to rest.

Copyright 2013 ABC News Radio


Eliminating Charitable Deduction Would Help Budget, Hurt Charities

Photodisc/Thinkstock(WASHINGTON) -- Looking for a way to put hundreds of billions of dollars back into the federal budget? Eliminating the charitable giving deduction would do just that.

The charitable giving deduction is the piece of tax code that allows Americans who itemize their deductions to subtract donations they give to tax-exempt organizations from their taxable income. For example, if John Doe gave $100 to his church, he could document that donation and subtract it from the income on which he would be expected to pay taxes.

Wealthier Americans get the most out of the charitable tax deduction, because their rate of taxation is higher. So if John Doe's income level puts him in a 35-percent income tax bracket, he would save $35 in taxes from his $100 gift. But if John Doe only pays 15-percent income tax, that same donation would only save him $15.

And John Doe can't deduct anything over 50 percent of his total taxable income.

The deduction is seen as a way to encourage charitable giving. It was first implemented in 1917 when World War I saw the income tax at high levels and policymakers worried that wealthier Americans would not have money left over for charity after taxes, according to the Tax Policy Center.

Almost a century later, doing away with the income tax reprieve given to taxpayers who itemize their gifts to charities, nonprofits, religious organizations and educational groups is an unpopular idea, but it would account for $239 billion between 2013 and 2017, according to the White House budget.

That said, the idea of getting rid of the deduction altogether is one opposed by both the left and the right. Some seek to modify it, while others say any change would be a needless tax increase.

Michael Ettlinger, vice president for economic policy at the liberal think tank Center for American Progress, called tossing out the charitable deduction "a bad idea" that would leave America either more dependent on the government or facing austerity.

"Eliminating it would undermine activities that help low-income people, that pay for the arts, that do a number of other things that are where government is much more heavily involved in other countries," Ettlinger said. "I don't think anyone's pushing hard to get rid of the charitable deduction."

Ettlinger called the fact that Americans in lower tax brackets get less back for their donations "an upside-down subsidy" and said his plan would fix that.

The proposal Ettlinger and others from CAP are putting forward to avoid sailing over the fiscal cliff includes a modification to the charitable giving deduction that would set the amount givers get back at 28 percent.

Instead of deducting the gift from taxable income, "take 28 percent of your charitable contribution and just subtract that from whatever you owe," Ettlinger explained.

Seth Giertz, the University of Nebraska economics professor who co-wrote the Congressional Budget Office's May 2011 analysis of options for the charitable giving deduction, said changing to a percent credit would cost the government less without hurting charities as much as eliminating the deduction altogether.

"It's probably going to hurt not a whole lot," Giertz told ABC News Wednesday. "But it's probably more likely to hurt certain charities that some really high-income people give money to." Universities, for example, might lose out in that scenario.

Giertz said that option might encourage more giving in other areas, however, because taxpayers who chose not to itemize their deductions could still claim the nonrefundable tax credit.

Another option the CBO studied in 2011 involved adding a minimum amount to the size of the gift a taxpayer could claim.

"If we had a floor like a fixed dollar floor … that's probably not going to affect at all the giving from high-income people that give a lot maybe to educational institutions," Giertz explained. "It might affect a little more moderate giving people."

But Giertz said either of these options would have to be part of a larger package of changes to achieve enough savings to bring the country back on good footing.

"Given the fiscal problems we're looking at, you can't just scale back the charitable deduction," Giertz said. "Problems are just too big for that."

And J.D. Foster of the right-leaning Heritage Foundation said taking away any deduction amounts to a tax increase that would not get at the root of the issue.

"In my view, the central fiscal problem we face is the federal government spends far too much, and will soon be spending far more as the entitlement programs balloon," Foster wrote in an email. "Until the President gets serious about this and puts forward substantive ideas on how to reign in federal spending, especially the entitlements, then there is not even a wisp of justification for talking about any tax hikes."

Copyright 2012 ABC News Radio

ABC News Radio