Charitable groups and top Republican tax-writers on Friday lashed out at the White House’s recruitment of non-profits in their battle over raising tax rates on the wealthiest.
Obama administration officials hosted charitable officials at the White House this week and held a call with other nonprofits on Friday as they made the case that higher tax rates could help preserve the deduction for charitable giving.
President Obama is pushing back on Republican arguments that significant deficit reduction could be achieved by capping deductions or tax breaks, and has said that those proposals would hurt the charitable sector because it would reduce the incentive for giving.
But at the same time, Obama does not appear willing to back away from his plan to limit itemized tax deductions, which nonprofit groups strongly oppose.
“They both should be off the table,” the Alliance for Charitable Reform said Friday of the White House proposal and the sort of deduction cap floated by Mitt Romney and Sen. Bob Corker (R-Tenn.).
“We should not be forced to choose between two bad options. Charities and those who give to charity should not be forced to enter this political wrangling.”
Rep. Dave Camp (R-Mich.), the chairman of the House Ways and Means Committee, and Sen. Orrin Hatch (Utah), the ranking Republican at Senate Finance, accused the White House of intimidating groups like it did during the healthcare debate.
Camp and Hatch noted that the president’s proposal to allow high earners 28 percent in deductions — down from the current 35 percent — was the only fleshed-out plan on the table that would weigh down charitable giving.
“Instead of bullying our nation’s charities, the White House should look at the calendar, stop the political campaign and start negotiating with Republicans to find a real and balanced solution that ensures America can both avert our fiscal cliff and confront our debt crisis,” the two tax writers said.
A GOP aide said Camp and Hatch released the statement after charitable groups contacted them about the White House’s Friday call.
The back-and-forth Friday underscores the challenge that charitable groups face in preserving their deduction, as policymakers search for revenues to ward off the tax increases and spending cuts that are scheduled to begin next year.
Charitable groups say reining in the charitable deduction would reduce contributions at a time when the economy is not firing on all cylinders. They are also quick to point out that their sector supports a wide variety of public programs, from the arts to education.
The Obama administration on Friday released a new paper that argues a cap on tax deductions would result in the end of the charitable break for as many as 13 million families and reduce charitable donations by billions of dollars.
The president has said that raising $800 billion to $1 trillion in revenue only through tax breaks would threaten the charitable deduction — which is why, he says, revenues from tax incentives should be used as a supplement to raising rates on family income above $250,000 per year.
Peter Orszag, the president’s former budget chief, has suggested that charitable contributions would be more at risk under a cap than other big-ticket deductions like the ones for mortgage interest or state and local taxes. That’s because, Orszag says, it’s easier to modify your contributions than to move to a lower-tax location or to a less expensive house.
“Solving the nation’s deficit and debt challenges will require that the highest-income households pay more and will likely require curbing their tax benefits,” the National Economic Council said in the Friday study.
“But under a more balanced approach that includes an increase in tax rates, this can be achieved without imposing major collateral damage on charitable giving and non-profit organizations.”
Still, several charitable groups have yet to join in the White House effort, even as they could arguably see some benefit if tax rates on the wealthiest rise. Higher tax rates would also mean that the highest earners would have a more robust deduction for their donations.
But higher rates could also mean fewer donations if the wealthy cut back on their giving, and the White House’s new paper reiterates that the administration would like to permanently lower the tax benefit for itemized deductions.
“The White House is sort of dangling out there that you can win on the deduction by supporting rate increase, but they’re not willing to take their deduction proposal off the table,” one source in the charitable sector told The Hill.
The charitable source also told The Hill that nonprofits have yet to see much of a groundswell in Congress for a deduction cap after meetings with scores of offices this week. Charitable groups also met at the White House this week with Jack Lew, Obama's chief of staff; Valerie Jarrett, a key adviser to the president; Gene Sperling, the director of the National Economic Council; and Cecilia Munoz, the director of the Domestic Policy Council.
Hatch, for instance, has sounded cool the deduction cap idea, and the charitable source said the sector expects Republicans to push to hash out the details of how to raise revenue in 2013.
“Genuinely, we are very worried right now,” the source said. “We are trying to navigate the politics of this and the policy of this in a way where we can come out without losing the deduction.”