5/30/14 — Charities adopt bunker mentality on taxes
By Bernie Becker
Nonprofit groups say they remain on high alert for congressional efforts to pare back tax incentives for charitable giving.
Charities have for years felt that their prized deduction for donations was under siege, with President Obama targeting it in each of his budget requests. Their worst fears nearly came true in the debate over the “fiscal cliff” in late 2012, as lawmakers toyed with scaling back itemized deductions.
With that history in mind, nonprofits say they aren’t resting easy, despite the fact the charitable deduction appears to be in less danger now. Few expect any major tax legislation to pass Congress this year.
Nonprofits says they’re worried that Congress will someday build on what they see as troubling proposals in the tax reform draft that House Ways and Means Committee Chairman Dave Camp (R-Mich.) released in February.
Those concerns come even as the sector has racked up a string of victories in recent weeks and months, including at a House Ways and Means markup on Thursday where some of their favored breaks were slated for renewal.
“We would feel pretty confident, but for Mr. Camp’s bill,” said Steve Taylor of United Way Worldwide. “The main concern we have is if Mr. Camp’s bill becomes the basis for work that is done on tax reform in 2015.”
Joanne Florino of the Philanthropy Roundtable said it would be silly for nonprofits to start feeling comfortable despite the lull in legislative activity.
“At the time of the fiscal cliff, there was more drama than there is right now,” Florino said. “But our timeline is a long one, and we have to think about where is this going in the big picture.”
Still, it’s easy to see areas where the political environment has improved for the nonprofit sector in recent years.
During the fiscal-cliff debate, both Obama and congressional Republicans campaigned for limits on the charitable deduction.
Obama has long sought to cap itemized deductions at 28 percent, well below the current top tax rate of 39.6 percent. Republicans at the time also floated the idea of capping the amount of deductions taxpayers could claim.
But on Thursday, the House Ways and Means Committee cleared five permanent tax breaks that help the charitable field, including incentives for companies to donate food and for older people to give from their retirement accounts.
Those permanent extensions face an uphill climb in becoming law this year, but nonprofit officials said they were encouraged that both Democrats and Republicans said they generally supported long-term extensions of the policies.
Democrats voted against the measures because their costs weren’t offset, something Republicans used to cast themselves as the charitable sector’s protector.
“It is disappointing that Democrats turned their back on charities, the people they help and the services they provide,” said Sarah Swinehart, a Camp spokeswoman.
On top of that, the clash between Democrats and Republicans over deficits — which dominated the first two years of the House GOP majority — has receded in recent months. For now at least, there are no looming deadlines like the fiscal cliff, which left advocates scrambling to protect an array of tax policies.
Plus, Senate Finance Committee Chairman Ron Wyden (D-Ore.), who took over the gavel in February, and Sen. Orrin Hatch (R-Utah) have made plain that they’re big supporters of the charitable deduction.
“We couldn’t ask for two more devoted champions for the charitable deduction,” said Geoff Plague, the vice president of policy and advocacy at Independent Sector.
But nonprofit advocates say they have plenty to worry about in Camp’s tax reform draft.
In his plan, Camp, who is not seeking reelection this year, proposed allowing taxpayers to deduct only donations above 2 percent of their income.
The Michigan Republican also proposed decreasing the number of taxpayers who itemize their deductions, which nonprofits fear could take also drag down donations.
“I do believe the environment in the Senate is very good for us,” said Taylor of United Way Worldwide. “We’re concerned about what the environment could be in the House.”
Camp has argued that his tax reform plan would be a winner for nonprofits because the economic growth sparked by the proposal would actually increase donations by more than $2 billion.
Even tax reform’s most ardent supporters on Capitol Hill don’t expect the code to be rewritten this year, and some analysts have said the next real shot for reform could be 2017.
But nonprofit officials say there’s plenty of reason to believe that Camp’s draft will influence tax writers who want to take a shot at reform next year.
Plague said that nonprofits were proud of their work fending off efforts to limit charitable incentives in recent years.
But, he added: “We don’t think we’ve won.”