By Vicki Needham - 12/05/12 01:27 AM EST
Groups that rely heavily on charitable giving will descend on Capitol Hill on Wednesday to defend the tax deduction for charities — a target in talks to reduce the deficit.
Hundreds of representatives from churches, museums, arts and educational groups, and other nonprofits will argue any change to the tax deduction will curtail giving and harm those who receive services.
While the tax break has been targeted in the past, the groups say the pressure this time is unprecedented.
“Over the last three years, I’ve never been more worried than I am now, partly because Congress is under enormous pressure to find new sources of revenue,” said Steve Taylor, senior vice president at United Way Worldwide.
President Obama weighed in on the matter on Tuesday as senior White House staff met with the leaders of several organizations, including United Way’s U.S. president, Stacey Stewart.
Obama — who has proposed lowering the deduction afforded to wealthier households — argued in an interview with Bloomberg that many groups would suffer if the charitable deduction were eliminated or too severely limited. He said “every hospital, university and nonprofit agency across the country would find themselves on the verge of collapse.”
The president is pressing Republicans to agree to a plan that would raise tax rates on annual income above $250,000. House Republicans have countered with an offer of $800 billion in tax revenues found from eliminating breaks.
The GOP has not specified those breaks, but Obama argued Tuesday it would be difficult to raise those funds without hitting the charitable deduction hard.
“There’s been a lot of talk that we can raise $800 billion or $1 trillion in revenues just by cutting loopholes,” Obama said. “But … the only way to do that would be if you completely eliminated, for example, charitable deductions.”
Talk about capping the tax deduction is escalating as lawmakers look for ways to generate more revenue and reduce the deficit while congressional action on looming tax hikes and spending cuts comes down to the wire.
Tom Riley, vice president of the Connelly Foundation in Philadelphia, said any changes to the charitable deduction would be “catastrophic” to the people served by nonprofits.
He also warned that more revenues for the federal government would likely just create additional costs for programs needed to help the poor as nonprofits struggle with less cash.
A change in the deduction would create a “real fundamental change in our culture” that is known for its giving, to the tune of about $300 billion a year, Riley said.
A May 2011 report by the Congressional Budget Office estimated eliminating the deduction, based on current levels of charitable giving, would raise about $230 billion between 2010 and 2014.
Taylor suggested that Congress and the Obama administration look for ways to create greater incentives for charitable giving amid high levels of unemployment.
The recession led to a dip in charitable giving. The average amount donated by wealthier households declined 7 percent in 2011 from 2009, to $52,770 from $56,621, according to the Center on Philanthropy at Indiana University.
The president’s budget has included proposals to reduce the maximum value for itemized deductions to 28 percent from the current 35 percent for households with annual income above $250,000. That could hit charities but would also affect other deductions, such as the mortgage interest deduction.