PLANK DECEMBER 12, 2012
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Amid the swirl of special interests with huge stakes in the "fiscal cliff" negotiations, only one can be easily identified by the halo that glows above it: the nonprofit sector. Charities, foundations and universities have a simple goal: to protect the tax deduction for charitable donations against various proposals, on both sides of the aisle, to reduce the break for wealthy taxpayers. These groups have as much right as any other to fight for their self interest. But we shouldn't let their good reputations prevent us from seeing them for what they are: a lobby with high-paid and highly-effective lobbyists, and without a halo.
This is hardly the nonprofit lobby's first go-round. At the start of his first term, President Obama's leading proposal to raise revenue to pay for expanded health coverage and other priorities was a limit on the itemized deductions that wealthy taxpayers could claim for charitable giving, mortgage interest and the like. As it stands, taxpayers in the top bracket get a 35 percent break (soon to revert to 39.6 percent if the Bush tax cuts expire) for charitable giving, far more than taxpayers in lower brackets; Obama's proposal would have narrowed the gap by bringing the break down to 28 percent. So, if a billionaire gives $100,000 to George Washington University, he'll reduce his tax bill by $28,000, rather than $35,000 under current law. The proposal would have raised $318 billion over the decade, and Obama argued, with some heat, that it would have done little to discourage charitable giving if (research on this question is mixed). "If it's really a charitable contribution, I'm assuming [the size of the tax break] shouldn't be the determining factor as to whether you're giving that $100 to the homeless shelter down the street," he said.
But the proposal was snuffed out almost instantly on Capitol Hill, thanks in large part to the swift action of the nonprofit lobby. It may not seem like the most powerful lobby, but it has a unique advantage: Virtually every congressman has a college or major charity in his or her district -- some have dozens -- and so they're all bound to get calls from home. Meanwhile, these sectors also have their well-paid representatives in the capital. To name just one example, Terry Hartle, the well-regarded veteran lobbyist for the American Council on Education, the main higher ed association in Washington, earns more than $400,000 per year. "We certainly registered our concern," Hartle told me when I asked him in 2010 about the defeat of the tax deduction proposal. "But . . . we were just a small part of any number of organizations that registered their concerns."
Now, however, the dynamic has shifted so that the nonprofit lobby is arguably allied to Obama in his dispute with the GOP. While the president is still in favor of shrinking the charitable deduction for wealthy donors, his favored route for raising revenue is to simply let rates for the top two brackets return to where they were before the Bush tax cuts. It's the Republicans who prefer to raise revenue through "closing loopholes and deductions" -- possibly by capping the total sum of deductions that taxpayers can claim, at, say, $25,000, a different approach than Obama's longstanding proposal. You would think that the nonprofit lobby would be pushing hard with Obama for the higher rates, both on regular income and capital gains. The more wealthy taxpayers owe, the more they'll presumably be inclined to give away, regardless of how big the charitable break is.
But this new dynamic does not seem to have made the nonprofit lobby an ally of the White House, perhaps because the charities and universities realize that to get to its revenue target, the White House will eventually need to reduce deductions in addition to raising the top rates. The New York Times had this intriguing tidbit in a recent report on the fiscal cliff negotiations:
Meanwhile, cracks emerged in the pressure campaign the White House is trying to assemble. A coalition of philanthropies refused publicly on Friday to join White House-organized efforts to raise the heat on Republicans in a show of moxie that portends poorly for any effort next year to tackle one of the largest tax benefits for the rich, the charitable deduction. The coalition, the Alliance for Charitable Reform, said in a statement that it “refuses to go along with the White House’s request for charities to insert themselves into the debate over tax rates.”
“Our priority is to preserve and protect the charitable deduction,” it said. “Throughout his first term, President Obama has proposed reducing itemized deductions, including the charitable deduction, in multiple budgets and other spending proposals, and never voiced concern over the impact of his plan on the charitable sector.”
Of all the nonprofits, it's the colleges and universities that have the most at stake -- as Justin Pope of the Associated Press recently explained, the higher ed sector relies on the wealthiest donors more than other social service organizations and religious charities for its $30 billion annual harvest of contributions. Pope reports a foreboding warning from Steven Bloom, another lobbyist at the American Council on Education, that "if colleges raise less from private donations, they might have to raise more from tuition." No mention by Bloom, of course, of the other dire options that might have to be entertained, such as, say, reversing the ever-rising tide of administrative pay that, as the Chronicle of Higher Education reported just this week, now has three dozen college presidents making more than $1 million (led by none other than Bob Kerrey, who pulled down more than $3 million in his last year at The New School.)
If that salary report did not help the pro-charitable deduction lobby in Washington, neither do all the reports in the papers these days about wealthy taxpayers rushing to take advantage of the deduction before the end of the calendar year when, who knows, it may shrink somewhat. Tax advisers are promoting "donor-advised funds," which allow taxpayers to set aside money for charity now, and claim the full deduction for it at 2012 rates, without having to actually decide yet where they want the money to go. They are also promoting a gambit that allows taxpayers to donate stocks and claim their appreciated value as a deduction, while not having to pay any capital gains on the gains they are getting the deduction for. The chief popularizer of this approach? None other than another halo-wearer: Warren Buffett. Warms the heart, doesn't it?
Follow me on Twitter @AlecMacGillis
11 comments
I am starting to favor getting rid of all charitable tax deductions (slowly) because as time goes on people will become to realize either the need for them or the need for government. As it is Republicans continue to use the tired excuse that charities will take care of the tons of unmet needs in society. Without the deduction let them either step up or face the consequences.
- blackton
December 12, 2012 at 11:29am
Congress can cut or eliminate the charitable deduction or any other itemized deduction or tax preference including the capital gains preference, but, like the Terminator, "they'll be back". It bears repeating, again and again, that an act of God is required to increase tax rates whereas tax expenditures grow like kudzu. It's a truism that the Republicans are counting on and many Democrats have forgotten. Any "compromise" by Democrats that doesn't raise tax rates but instead relies on cutting tax expenditures to reduce the deficit is a fool's compromise; indeed, the ultimate outcome, higher deficits, is the goal for Republicans so they can finally drive a stake through entitlements as the only way to avoid bankruptcy. It's been less than 30 years since the last time Democrats bought into the idea that the budget could be balanced by cutting tax expenditures ("broadening the base" was how it was described), an idea that, surprise, led to endless deficits, yet here we are having a national discussion about repeating the same folly. Have Americans, like the Romans, gone insane?
- rayward
December 12, 2012 at 12:20pm
A large segment of Americans seems to have track of reality. Many, including people in Congress, believe the earth is less than 10,000 years old. What does that tell you. Meanwhile though, surveys of the American people in general seem to support the idea of tax rates increasing on wealthier Americans and support for maintaining and strengthening SS and Medicare and even including a public option to rein in health care costs. So, MOST Americans haven't gone insane but quite a few have, or they are simply full of hate and fear and superstition - including religious superstition and irrational fear of both government and "the other," which includes Democrats, unions and public sector workers especially school teachers; and they're being used by the hard right and big business (unholy alliance) to try and dismantle the government. This is actually quite surreal which is why people have been slow to grasp the scope of this disaster - the press also doesn't seem to have seen it until it's almost too late. But the mere existence of Grover Norquist and his apparent power, attacks on workers' and women's rights, the shooting of important and precious wolves right outside Yellowstone Park, the gun lobby, ALEC, etc, all seem to support an organized movement to dismantle the US as a civilized country, or even as a country.
- Sophia
December 12, 2012 at 1:32pm
Religious groups should probably start paying taxes and/or lose charitable deduction status. They are political groups now. We can't deduct campaign contributions so why should contributions to aggressive and highly political religious groups be exempt from taxation? Certain Christian organizations are becoming a threat to American political tradition (such as the secular state) and also, people's individual rights, science, environment. Bruni has a piece in the NYT that's an eye opener. Aggressive Christians in military academies are a growing problem. We see the grip they have on political power. Nobody would have countenanced Rick Santorum 15 years ago, imo. But now? Now we have personhood amendments floated in Congress and women are threatened (including our lives, dignity and health.)
- Sophia
December 12, 2012 at 1:38pm
College will have to raise tuitions!? Wow!! Cognitive dissonance is the No. 1 disease in the U.S. Colleges and universities have been raising tuitions at rates that far outpace inflation for decades. And that's despite the eye-popping donations they (primarily elite schools) receive. Has there been a commensurate reduction in tuitions? Methinks not.
- tec619
December 12, 2012 at 6:27pm
Tsk tsk Sophia. Received wisdom doesn't require nonsense like evidence and proof. :-)
- tec619
December 12, 2012 at 6:29pm
What blackton said.
- arnon1
December 12, 2012 at 8:02pm
The best rebuttal to the nonsense being written about charitable giving and the charitable deduction is in today's Times: http://www.nytimes.com/2012/12/16/business/the-charitable-deduction-and-why-it-needs-to-stay.html?ref=economy If some religious organizations are stepping over the line in getting involved in political lobbying, the remedy is to penalize them for doing so; the answer is not to undercut one of the best things this country does. Yes, some of the work done by some charities does not match my priorities. That's OK. It's a big, diverse country, and rather than have everything decided in Washington, we have "crowd sourced" many decisions about helping others. The charitable deduction is not like other deductions. With the deductions for home mortgage interest, college funds, health care expenses, it's basically about self-interest. There is some social benefit to citizens being able to buy a home (though we've seen how that idea can be taken too far), put their kids through college, and pay medical bills, the basic thrust in each case is the benefit to oneself and one's family. In contrast, with charitable giving, the balance flips the other way: there may be some individual benefit to the giver from charitable giving (though giving to the old alma mater does not guarantee one's kids will be accepted), but the primary beneficiary is society. President Obama, with whom I normally agree, gets this one wrong. The realities of fund raising (with which I have some familiarity) are that, yes, some people would still give even if the deduction did not exist. Obama likely would, and so would I. But a lot of people would give less. And those hurt the most would not be the wealthy. Read Shiller's column carefully. And let's all argue forcefully that the "broadening the tax base" claptrap is a Republican fraud, which Bowles foolishly fell for.
- bjones
December 16, 2012 at 10:12pm
@bjones -- Amen.
- mcmahon.an
December 17, 2012 at 10:59am
It's interesting that, when it comes down to it, talk of "closing loopholes in the tax code" means little more than going after charitable deductions. How about really going after deductions that benefit "job creators" for a change? -http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Deducting-Business-Expenses -http://www.tnr.com/article/politics/the-mystery-the-free-lunch (Dated but still relevant)
- mcmahon.an
December 17, 2012 at 11:06am
@Alec--Why the scare quotes around donor-advised funds? They have been around for a while; you may not have ever considered this, but giving away millions of dollars through a foundation involves quite an administrative burden (not that I experience this personally)...Lots of money is given away through such funds (often they are housed in banks, community foundations, etc.) and you ought to think twice before you try to sully them. "Tax advisers are promoting "donor-advised funds," which allow taxpayers to set aside money for charity now, and claim the full deduction for it at 2012 rates, without having to actually decide yet where they want the money to go. "
- mcmahon.an
December 17, 2012 at 11:10am