Monday, Janurary 1st, 2006

News Updates

Nonprofits Fight “Floor” In Charitable Deduction Bill

A loose coalition of nearly 50 nonprofit organizations is lobbying Congressional leaders to drop the Universal Charitable Deduction in the Senate version of the tax reconciliation bill to be considered when Congress reconvenes this month, differing from the position of Independent Sector, which has supported the measure.

Fearing that Americans who itemize their income taxes might give less as a result of a smaller tax incentive, approximately 50 organizations have signed a letter that will be sent to members of the House Ways & Means Committee and Senate Finance Committee before a vote is taken.

This is the first public break from legislative package of reforms worked on with Congress by advocacy group Independent Sector and its Panel on the Nonprofit Sector. A spokesman for Independent Sector could reach a senior representative for comment by press time.

There is also a split in opinion at the Direct Marketing Association Nonprofit Federation, where several members, including board members, have signed the letter. The organization’s board remains supportive of the Independent Sector approach.

“There’s a mixed view of this in our community,” Senny Boone, executive director of the Direct Marketing Association Nonprofit Federation, said. It’s a matter of taking a look at the legislation when Congress comes back this month, she said, and the federation now is serving as “a clearinghouse of information” on the topic, providing a sample letter that members can sign on to if they have a concern.

A conference report is expected to be voted on this month after passage by the Senate (S. 2020) in December, and the House (H.R. 4297) in November. The Senate version of the legislation includes the non-itemized deduction, as well as an IRA charitable provision, but the House version does not. Members of the House and Senate will have to reach some compromise in conference that will need approval from both houses again.

Under the new legislation, which would be in effect for two years, all Americans, whether they itemize or not, could deduct charitable contributions of more than $210, or $420 for joint filers. Currently, only taxpayers who itemize their taxes can deduct the full amount of their charitable donations.

The 25 percent of Americans who itemize their taxes gave approximately $150 billion last year, more than 80 percent of the total $186 billion given by individuals, according to the Giving USA Foundation. The letter to Congressional leaders calls for itemizers’ charitable contributions to remain fully deductible, and not pay for tax incentives for non-itemizers on the backs of those who itemize.

“We know that the support provided by itemizers is extremely important to charities across the country… We believe this support is too critical to put at risk in the hope for a relatively modest -- and purely theoretical -- gain in giving that might come from non-itemizers,” the letter states.

“The non-itemizer deduction, in and of itself, I don’t think anyone has a real disagreement with,” said Kelly Browning, executive vice president of the American Institute for Cancer Research, and also a DMA board member. “Most charities will say it’s a good thing. Here’s the problem that comes about in the world we now have, with all this budget scoring where everything has be revenue neutral: For people who itemize, they’re paying for those provisions that non-itemizers get.”

The revenue loss for the federal government from allowing non-itemizers a deduction would be about $2 million over 10 years, according to Independent Sector, a coalition of nonprofits, foundations and corporations.

“We think it’s bad tax policy, we think it’s wrong,” Browning said. “We just think it’s a bad departure to put a floor on the ability to deduct your charitable deductions from income tax. All American taxpayers, if they itemize, should get full credit for deductibility.”

Sister Georgette Lehmuth, OSF, president and CEO of the National Catholic Development Conference (NCDC), said it has always been tradition that donors received the total value of their deduction when making charitable contributions. “A floor puts that in jeopardy,” she said. “It sets a bad precedent.”

United Way of America (UWA) officials believe the proposal, as passed by the Senate, will generate at least an additional $100 million per year for its local chapters, and at least $1 billion a year for the charitable sector as a whole. “That’s probably a conservative estimate, it probably will be several times that,” said Patrick Lester, policy director for UWA.

United Way also expects an increase in giving from non-itemizers of at least 27 percent, a figure anticipated under the proposed CARE Act. The basic difference between the CARE Act -- which called for a $250 floor and $500 ceiling -- and the current proposal is that the latest legislation has a lower floor ($210) and no ceiling at all. “So we believe it would generate significantly higher contributions,” Lester said, although the organization has not yet “run the numbers” based on the new bill.

UWA would like to see the deduction floor of $210 lowered, but still strongly supports the tax provisions in the Senate legislation. “If we were able to get it lowered in this or subsequent legislation, we would absolutely favor it,” Lester said.

Every $10 that the floor is reduced costs the federal government about $100 million annually, so it “depends on where money is coming from.

“There are a lot more bigger-picture decisions right now,” he said. “We support the lowest floor we can get but still get the thing enacted.”

“If the nonprofit world accepts this floor, on what basis can we argue in the future, that a $210 floor is OK, but a $250 or $300 floor is not acceptable,” Browning said. “Once we go down that road -- take away a certain portion of the deduction -- we’re setting ourselves up for a battle we can’t win. Once you accept that, where do you set the line on acceptable floor or not?”

In a position statement compiled for the CARE Act, which has bounced around Congress for several years but never passed, UWA said the vast majority of its donations are less than $500. Some 94 percent of donors give an average of approximately $101. A large percentage of them do not itemize or get a perceived tax break for their contributions. One category of declining participation, United Way research indicated, is among donors who give less than $500, and thus, tax incentives could encourage more participation by those who give the smaller gifts.

The tax provision brings a whole new set of donors to charitable purposes, said Neal Denton, executive director of the Alliance of Nonprofit Mailers. In talking with all nonprofits, Denton said, there’s been a unifying theme: no one really knows what the impact of the tax provisions will be on charitable giving.

Legislation is moving quicker than empirical data is being compiled, he added. The question remains, how will the value of the non-itemizer, coupled with a new floor affect donor behavior? “We just don’t know,” Denton said, adding that there have been no hearings and not enough analysis from organizations since the nonprofit community only began to study the ramifications of the new charitable provisions since Thanksgiving.

“Some have more concern than others,” Denton said. “Those that rely on smaller contributions, generally direct mail and a small average gift, are probably more troubled by floor.”

Had the Senate discussed the issue more, Sister Georgette said, “we might have a clearer idea of what could be lost.”

Lester, of UWA, said he doubts very much than an organization doing direct mail is aware if the targeted giver itemizes or not, adding that two-thirds of those receiving pieces are not currently receiving any deduction but will under the new law. And with the sharing of donor mailing lists between similar organizations, groups must look at how people give overall. By definition, they may be giving small contributions, but you can’t look at it in isolation; people are giving to multiple organizations, he said.

“I challenge anyone with concerns to really look into their numbers and scrutinize them. I believe they’re shooting themselves in the foot if you’re going after this provision,” Lester said.

The hypothetical itemizer who might donate $500 annually now would only be allowed to take a tax deduction of $290. They’re not losing $210, Lester argues, because if the appropriate tax rate is applied, that itemizer is getting about $70 or $80 less in their final ax bill. “The money generated from that is what’s allowing non-itemizers to get a deduction. Are there tradeoffs? Absolutely.”

Copyright © 2006 The NonProfit Times.