Fight looms over deductions for nonprofit groups

Nonprofit groups have been fighting to preserve the current deduction for charitable giving throughout President Obama’s term — and it doesn’t look like that’s going to change any time soon.

Officials for charitable groups note that the drumbeat for tax reform and the need for a grand deficit bargain has only intensified in recent months. As a result, nonprofit groups say they will continue to be on high alert no matter who controls the White House or Congress after November’s election.

Steve Taylor, senior vice president at United Way Worldwide, noted that nonprofits had to keep their eye on both the post-election session of Congress and 2013 as they battle any changes to the deduction.

Lawmakers will be forced to face the looming tax increases and spending cuts known as the “fiscal cliff” in this year’s lame-duck session of Congress, and key officials in both parties are looking more and more at 2013 as the year for tax reform.

“We are acutely aware that the fiscal pressures have increased, and as a result, this hunt for more revenue is intensifying,” Taylor told The Hill.

Taxpayers using itemized deductions can currently write off up to 35 percent — the top rate for individual income — on their charitable contributions for a given year.

But in each of his budgets, the president has proposed reducing the maximum value for itemized deductions down to 28 percent.

The Obama administration has sought to use that additional revenue for a variety of projects over the years, but it also cast the proposed change as a matter of simple fairness: wealthier taxpayers, because they pay a higher tax rate, get a more robust write-off for their donations.

Meanwhile, Mitt Romney, the GOP presidential nominee, has proposed an across-the-board cut in tax rates that he wants to pay for by limiting preferences for the highest-earning taxpayers — many of whom heavily contribute to charities.

Congressional tax-writers on both sides of the aisle have also vowed to examine every nook and cranny of the code in their own tax reform efforts.

Nonprofits have made the case that charities have had to pick up the slack in recent years, with government budgets strapped and the economy in the doldrums. Because of that, they say, now is not the time to take away any incentives for charitable giving. 

Charitable groups have also cited surveys showing that solid majorities of wealthy households would limit their giving if the tax break was eliminated.

But Diana Aviv, the chief executive of Independent Sector, a trade organization for nonprofits, also told The Hill that the charitable sector needed to be careful not to go overboard with its message.

“The tricky part of that argument is, what do you say when the economy rights itself? The charitable sector is there for every kind of need,” Aviv said, noting that areas such as education and the arts have not historically gotten as much help from public spending as healthcare and other human services. “We don’t ever want to suggest that the deduction is never not important.”

Defenders of the charitable tax break are pointing to some promising news in recent weeks and months, though.

The most recent Republican platform, for instance, specifically said that charitable donations should be tax deductible, even as it stopped short of saying that the current deductions should be preserved. The so-called “Buffett Rule,” the Democrats’ push to ensure that millionaires pay a minimum tax rate, also exempted the charitable deduction.

But Taylor said that, with the back-and-forth over the charitable deduction perhaps about to enter another year, he was concerned the nonprofit sector might have to battle through some fatigue.

“This is an issue that matters really deeply to local United Ways. And they aren’t necessarily used to having this ongoing intensity on an issue,” he said.

Aviv also acknowledged that the lobbying over the charitable deduction has been draining. But she also noted that charities throughout the sector continued to see preserving the deduction as a top priority.

“Are they tired of working on it? Yes. But will they keep working? Yes,” Aviv said. “As long as it’s a threat, it’s a threat we’ll keep working on — no matter what.”