Tax-deduction cap worries philanthropies

Jewish philanthropy leaders were disappointed in the Obama administration’s proposed cap on tax deductions for charitable contributions.

The cap, contained in President Obama’s new budget plan, would reduce incentives for charitable giving, the leaders assert.

“When there is a greater demand for our community organizations to respond to the difficulties of people in need, building the capacity of those organizations should be the goal, not limiting their ability by taking away the incentive for charitable giving,” wrote Jacob Toporek, executive director of the NJ State Association of Jewish Federations, in an April 9 e-mail to NJ Jewish News.

William Daroff, vice president for public policy and director of Jewish Federations of North America’s Washington, DC, office, estimates that revenue losses to all charitable organizations will be “anywhere from three to seven billion dollars,” citing the Institute for Charitable Giving at Indiana University.

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“This part of the Obama budget proposal is most troubling to us,” Daroff told NJJN. “The losses to federations would be particularly high, because most federations raise 90 percent of their funds from the top 10 percent of their donors.

“Those 10 percent tend to be the donors who are most tax code-sensitive,” Daroff added. “The impact would definitely be in millions of dollars at a time when government needs to work with charities to provide a social safety net” for those lacking basic needs.

The proposal limits the amount upper-end taxpayers can deduct for donations to philanthropies. People in a 35 percent tax bracket — the top marginal tax bracket — would have their gifts capped at 28 percent, instead of being granted full tax write-offs.

Linda Czipo, executive director of the NJ Center for Nonprofits, also criticized the proposal.

“Anything that is going to discourage people from giving is a big concern,” she told NJJN. “The nonprofit community has taken it on the chin for several years with the bad economy. This couldn’t come at a worse time, and it will do much more harm than potential savings might predict.”

The charitable contribution deduction is different from other itemized deductions, said Gordon Haas, chair of the Community Relations Committee of Greater MetroWest NJ, in that “it encourages individuals to give away a portion of their income to support organizations such as the Jewish Federation of Greater MetroWest NJ that provide for those in need.”

The deduction, said Haas, “rewards a selfless act, and it encourages philanthropy at a time when such acts are essential.”

Daroff said he is optimistic that a bipartisan effort in the House and Senate will remove the cap on charitable deductions from the final bill.

He called the budget battle a delicate “kabuki dance,” because, for the first time in five years, the House, Senate, and administration have all submitted their own budget proposals.

“We are most concerned about the discussion of tax reform now happening in the House Ways and Means Committee and Senate Finance Committee,” Daroff said. “They are now looking at ways to make the tax code simpler, and our concern is that the charitable tax deduction could fall victim as they eliminate a number of tax deductions.”

Daroff said he is also concerned with federal deductions for mortgage payments and state and local taxes. “For people in New Jersey, that is a big deal,” he said.

“We are making a case that the charitable tax deduction is a different animal than any other piece of the tax code because the recipient of the deduction does receive a direct benefit from it.”

Local federations and their associated agencies will continue to lobby to restore the full deduction, said Toporek.

“It does not alter our determination to continue to advocate — as a community and in alliance with representatives of national and state charities and nonprofits — that Congress oppose any change in the charitable deduction,” he said.

Haas said he hopes “the president and Congress will work together to continue, as is, the charitable contribution deduction to ensure that the most vulnerable among us is cared for in a compassionate manner.”

Such lobbying efforts by federations and their associated agencies are competing with even more intense debate over gun control and immigration reform on Capitol Hill.

“The noise of Washington makes it more difficult to focus on the long-term structural issues,” said Daroff. “So getting the right amount of attention on these structural issues is tough to do because, frankly, they are not as sexy and not as much in the news.”