In the short time that Barack Obama has served as America’s president, the organized Jewish community has been one of the young administration’s most solid bases of support for its liberal political agenda. But now, many of the major Jewish organizations are taking issue with a proposal that they fear will strike at their very lifeblood — charitable donations.
As part of a recent set of proposed revisions to the tax code, the Obama administration has suggested lowering the rate at which taxpayers in higher income brackets can deduct such things as mortgage payments, state and local taxes, and charitable donations. The proposal, which would go into effect in 2011, is expected to generate an additional $317 billion in revenue over 10 years, and is a key part of the administration’s plan to set aside $634 billion to cover health care costs. The plan has left many Jewish groups walking a fine line between supporting the administration’s overall budget proposal and attempting to push back on the charity provision.
“We’re very concerned by this proposal,” said Richard Foltin, legislative affairs director of the American Jewish Committee. “We recognize the worthy effort that this change would be intended to finance, addressing reforms in this country’s health care system, but the impact on nonprofits could be nothing short of devastating in these very uncertain times.”
In the days following the initial budget proposal, a number of major Jewish groups — including the Orthodox Union, the Jewish Council for Public Affairs, the AJC and United Jewish Communities — took stances opposing the provision on charitable donations.
The cautiously worded statements that many of these groups issued, praising the budget proposal while deploring the cut in charitable deductions, highlights the delicate tightrope that Jewish groups are having to walk. These organizations are trying to boost — or, at the very least, to avoid antagonizing — an administration that is closely aligned with many of their priorities, while protecting themselves in a chaotic economic environment that has left many not-for-profits scrambling for their existence.
The concern about the tax provision’s effect on not-for-profits is by no means limited to the Jewish part of the charitable world. A number of charity watchdog and umbrella groups have also criticized the measure, warning that it would devastate charities already reeling from the effects of the economic downturn.
“This could be a problem for many struggling nonprofits vital to our communities that are already facing a very difficult fundraising environment,” said Diana Aviv, president and CEO of the charity watchdog Independent Sector, in a statement. Aviv is a former head of UJC’s Washington office.
The Obama administration’s proposal is to let the Bush administration’s upper income tax credits expire in 2011, which would raise the top two tax brackets, now 33% and 35%, to their Bill Clinton-era levels of 36% and 39.6%. At the same time, taxpayers in those two brackets would be allowed to deduct donations (and to make other deductions) at the rate of 28%. Currently, donors can deduct their donations at the full tax rate of 33% or 35%, depending on their income.
There is widespread (though not universal) agreement in the not-for-profit world that the combination of higher taxes and a lower deduction rate will reduce the number of dollars going to charities.
“There’s a double reduction in incentive,” said Paul Schervish, director of the Boston College Center on Wealth and Philanthropy. “People are paying more taxes, and they have less discretionary income. To make an impact of a dollar, it costs them more.”
Schervish also noted that although the proposal would affect a small percentage of taxpayers, it could have an outsized impact on charities. According to Schervish, families earning more than $200,000 a year make up only 5% of the population but donate 45% of charitable dollars. The Obama proposal would affect families making more than $250,000 and would go into effect in 2011.
Paul Van de Water, a senior fellow at the left-leaning Center on Budget and Policy Priorities, said that his organization, which supports the proposal, estimates that the Obama proposal would cost charities an estimated $4 billion of the more than $300 billion in annual charitable contributions.
But not all experts agree that the proposal will change the way donors give to charity. Richard Marker, a consultant who works with wealthy donors and foundations, said that in his experience, tax deductions rank low among the priorities of big donors.
“I think there’s other issues that are more pressing right now than the tax deductibility,” Marker said. “If you’ve lost 60% of your net worth in the last year, I think that’s a much more profound deterrent to giving than a couple percentage points in deductibility.”
That logic, in turn, has created a counterargument — namely, that the tax deductions matter far less than efforts to prop up the broader economy.
“We all need to hope that the combination of things [Obama’s] doing — things in the tax code, the stimulus bill, etc. — result in an economy that’s booming by 2011, when the tax changes would go into effect,” said Simon Greer, president and CEO of Jewish Funds for Justice. “Because, ultimately, if the economy continues to worsen, there will be less charitable dollars to go around, regardless of whether the incentives exist or not.”
Greer also argued that charities needed to see their own woes in the larger frame of public policy.
“In the context of very hard choices about very scarce resources, I would say that if we need to reduce the deduction for charitable giving on the highest-income Americans by 7% but we get the chance to repair the broken health care system, it becomes a very clear choice to me,” Greer said.
In the meantime, those groups that oppose the cut in charitable deductions have begun conferring with officials in the White House and on Capitol Hill, gingerly trying to push back without opening a wider rift with the administration.
“We can disagree. We disagree on this piece; we’ll disagree on other things later. Nobody agrees all the time,” said Hadar Susskind, Washington director of the JCPA. “The good news is that both we in the Jewish community and the administration are sophisticated enough that we can agree and disagree and still keep working together.”