Do Nonprofit Advocates Put Too Much Emphasis on the Charitable Deduction?

I was planning to return to the charitable tax deduction issue again at some point—specifically, I wanted to delve again into the the tendency of several high-profile, Washington-based nonprofit umbrella groups to focus more on protecting the charitable deduction than advocating against budget cuts or for new revenue. But Patrick Lester, writing for the Nonprofit Quarterly, has already done a better job with this topic than I would have:

This narrow focus on the charitable deduction drew criticism from some in the nonprofit community, including Aaron Dorfman at NCRP. “Policies that incentivize charitable giving are important,” he wrote, “but nonprofits should be far more concerned about several other elements of the fiscal cliff negotiations. Our number one priority should be to raise tax rates on the wealthy by allowing the Bush tax cuts to expire for Americans earning more than $250,000 per year. We should also seek to prevent cuts to vital programs that serve poor and elderly Americans and to secure strategic investments that stimulate the economy and create jobs.”

Dorfman is right. According to the National Center for Charitable Statistics, public charities that filed annual 990 forms with the IRS in 2010 derived about a third (32.2 percent) of their revenue from government sources, including grants and fees for service from government sources, such as Medicare and Medicaid. By comparison, these same charities drew 13.3 percent of their funding from private contributions. (my emphasis)

Lester also cites a 2010 Urban Institute study of human service nonprofits that found an even higher level of dependence on public funding among these groups—about 65% of total revenues.

Lester writes: “It is clear from these numbers that large swaths of the nonprofit sector are substantially dependent upon government funding.” He goes on to ask why so many mainstream nonprofit organizations have not been advocating on the broader set of federal budget issues, particularly cuts to services for the poor, and offers some interesting explanations. If you are at all interested in this issue, be sure to read the whole piece.