Yesterday’s NPR interview with House Ways and Means Chair Rep. Dave Camp (R-MI) and Senate Finance Committee Chair Sen. Max Baucus (D-MT) painted a stark picture of their vision of comprehensive tax reform. Scratch that – there was no paint. What we were shown was an empty canvas. In Chairman Camp’s words, “We take a blank piece of paper and start over.”
So what does this mean for the charitable donor? For the nonprofit organizations that provide critical services, educational enrichment, and spiritual fulfillment? For the millions of Americans who each and every day receive hospital care, attend a Bible study group, visit a museum, drop a child at a day-care center, check out a library book, take a class at a community college, bring home a bag of food from a local food pantry, and learn English from a volunteer tutor?
It means simply that nothing is guaranteed; that we can’t take the charitable deduction for granted; that despite the lobby days, the calls and letters, the op-eds, the clear evidence that capping the deduction will hurt our communities, the fight is not over. Sen. Baucus made it clear: “When we start from scratch, start from no deductions, no credits, no exclusions, that puts the burden on them - that is, those who want those provisions - to state a better case as to why they should be in.”
In news that surprised much of official Washington last week, Max Baucus, the senior Senator from Montana, announced that after 35 years in Congress, he would not be seeking reelection in 2014. In tax world, that news wasn’t just surprising, it hit like a thunderbolt, given that the Democratic Senator is also Chairman of the Senate Finance Committee.
So what does that mean for tax reform? We’re pretty sure it means the chances of tax reform have just gone up – maybe not by a whole lot, but they’ve almost certainly increased. With a potentially tough election off the table, the Senator is freed up to pursue tax reform and he has made it very clear that is what he intends to do. A very senior advisor to the Senator had simple advice for us on tax reform, “Get ready!”
What happens next in tax reform? Well, for starters, the portal is officially closed.
What portal you might ask? That would be the online device the House Ways and Means Committee set up to take comments on tax reform. You can take a look here. As you can see, the comments range from lofty “big” ideas to more parochial “fixes.’ The comments are directed at the eleven tax reform working groups set up by Chairman Camp.
Rob Collier, president and CEO of the Council of Michigan Foundations, recently published an op-ed in the Lansing-State Journal on the important role the charitable deduction plays on both a state and national scale.
“So here is my ask,” wrote Collier. “The next time you see your state representative, state senator or a member of our congressional delegation, please remind him or her that:
• Individual givers and charitable foundations cannot replace government funding.
• The charitable tax deduction is not a loophole for the wealthy; the real beneficiaries are those served by the nonprofits that employ so many of our friends and neighbors.
• The charitable tax deduction is a model that other democracies around the world have modeled.”
The President’s FY14 Budget included the so-called Buffett Rule for the first time, although they formulated the idea and have supported it before in other measures. The provision is complicated so we wanted to give you a quick primer on understanding how it will work and what this might mean for charity.
The proposal calls for a phased-in 30% minimum tax on incomes beginning at $1 million. But, the President provides a carve-out for charitable gifts by providing a credit against the taxes owed. The kicker is that the credit is capped at 28%. Based on projections of how much a 28% cap would decrease giving, we believe this proposal would be equally harmful.
The Obama Administration today released its budget for the 2014 Fiscal Year. As expected, the budget included a 28% cap on itemized deductions, including the charitable giving deduction. In a televised statement in the Rose Garden announcing the budget’s release, President Obama offered stark words on why he thinks it’s time to close these itemized deductions, often referred to as “loopholes.” While he did not specifically mention the charitable deduction, this is what he did say:
“There’s no excuse to keep these loopholes open. They don’t serve an economic purpose, they don’t grow our economy, they don’t put people back to work. All they do is to allow folks who are already well-off and well-connected to game the system. if anyone thinks I’ll finish the job of deficit reduction on the backs of middle class families or through spending cuts alone that actually hurt our economy short term, they should think again.”
President’s Obama’s budget is expected to be released next week, on April 10. So what do we expect that budget to contain on taxes and how might that impact charitable giving? More of the same or breaking new ground?
Most prognosticators expect more of the same. “I don’t expect anything groundbreaking or new” says Curtis Dubay with the Heritage Foundation.
We talk a lot about the charitable deduction being at risk at the federal level. But lately, states have also been struggling to find revenue and have considered turning to cuts or even eliminating the charitable deduction. Take for example a new bill in Oregon that would do just that. Oregon House Speaker Tina Kotek (D-Portland) introduced a bill that would allegedly end most itemized tax deductions, including those allotted for charitable contributions (you can track the bill here.) As one might expect, this has created some unrest in Oregon’s charitable community.
News reports have highlighted this concern—nearly 30 nonprofits met with State Representative Jason Conger (R-Bend) on March 29 to voice their concerns, as reported by the Oregon Catalyst. “Ninety-five percent of our budget comes from private donations,” said Kristy Krugh, executive director of Ronald McDonald House of Central Oregon, in the article. “We could not exist if this bill inhibited, in any way, the ability for our community to give us the money and items we need to support our facility.”
ACR believes we should be doing more to encourage giving, not less and we share Krugh’s sentiment. The charitable deduction is one way we encourage more giving and therefore should remain in place. Donations allow charitable organizations to prosper and operate with efficiency and success, providing more services for those in need. Rep. Conger has vowed to fight the bill in the Legislature.
As situations like the one in Oregon arise, we will keep you posted. For more information on the charitable deduction, visit our website.
We are excited to announce the debut of John Tyler’s second monograph of the Principles of Philanthropy series, Transparency in Philanthropy. Transparency and calls for organizations to release more information has been a subject of increased focus recently. This new book focuses on the important issues that charitable organizations face when planning transparent strategies and urges nonprofits and foundations to carefully think about what works best for their organization and stakeholders.
Private foundations are obligated to provide certain types of transparency through tax laws. Transparency does not currently exist in a legal context as a means to assess organizational effectiveness. Yet, taking these requirements to the next level could hinder what many charitable organizations are working to accomplish by expanding the legal jurisdiction of transparency requirements. So why should foundations be immune to the “transparency standard” like that placed on government and for-profit entities? It’s simple. Different levels of transparency are imposed on different types of institutions depending on the purposes these entities serve. Tyler argues that philanthropic organizations do not exercise the same powers over citizens as our government does, thus should not be held to the same standards. Transparency is not an end, but a tool to reach an end. The current Tax Code is sufficient to ensure these organizations are using their assets for charitable purposes.
The book also discusses, that as private organizations, what should be required to prove what it’s doing to provide a “public benefit” or “social good?” Is there but one definition of a social good? What should be encouraged rather than required? How can effectiveness be measured in such a diverse sector? While these questions to be answered by politicians in Washington, it could be argued that this protocol would quickly become a means to pursue interests only beneficial to the governing power at the time. Would this allow for the ruling body to micro-manage foundations, say, through replacing staff members?
However, Tyler writes, organizations should consider tools that may increase their transparency and provide more information to their stakeholders, like board members and donors. Some organizations may feel that a more informed body of stakeholders will improve their work and may also create a better culture of buy-in from those stakeholders. Rather than a one-sized fits all approach, this method of assessing transparency needs will allow organizations the flexibility to meet the demands of their stakeholders and make the best decisions for that individual organization. The book provides a great checklist (download the Companion Guide) of things an organization should think about when planning transparency strategies and will help readers begin thinking about what works best for their organization.
Effectiveness is not something that can be defined in black or white, nor can it be objectively viewed with greater transparency as some claim. Tyler’s new book discusses this and much more and we look forward to talking more about it this month.
For a shortened version of the book, download our Companion Guide here. For the full book, click here or email us and we will email you a hard copy free of charge.
The final panel of the ACR Summit for Leaders was heavy on reflections from the recent fiscal cliff battle and even heavier on advice for the challenges ahead over the next few months in Congress.
Sue Santa, senior vice president for public policy and legal affairs at the Council on Foundations, opened the panel describing how the charitable sector moved from obscurity to the spotlight in a matter of months last fall because of the concerted efforts the Charitable Giving Coalition, an organization of over fifty organizations including ACR dedicated to preserving the charitable deduction. The Coalition was even named one of five leaders that will make an impact in public policy in 2013 by the Chronicle of Philanthropy. How? By better understanding our issue, our audience and boldly saying we are different.