Helpful Pointer to Charitable Deduction Proposals

In case you missed it, the House Ways and Means Committee released a 558-page (!) report earlier this month detailing a range of options for overhauling the tax code. For those of us who work in the nonprofit sector, the report is of some significance because it  summarizes all of the proposals for limiting or changing the charitable tax deduction that have been bandied about over the last several years. A recent article in the Chronicle of Philanthropy  helpfully pointed out that the section on charitable giving begins on page 491.

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.

Rep. Griffin Thinks Government Funding for Nonprofits Makes Them Dependent and Lazy

Good coverage in the Chronicle of Philanthropy of last week’s House Ways and Means Committee hearing on the charitable deduction.

It was interesting to read that Rep. Griffin is now employing the “takers vs. makers” rhetoric when describing nonprofit organizations’ relationship to government funding:

Some lawmakers hinted they were itching to explore nonprofit issues beyond the charitable deduction. Rep. Tim Griffin, Republican of Arkansas, said he was shocked to learn that some nonprofits in his district rely on government money for up to 80 percent of their revenue.

He questioned whether it would be more efficient to encourage people to give to them directly, rather than to pay taxes to the federal government, which then trickle down to the nonprofit through the state and county.

They’ve become dependent nonprofits,” he said. “The tools in the philanthropy tool box rust. They don’t have to court big donors, and they love that. They don’t have to have annual dinners, and they love that. They just get that big check from the federal government.(my emphasis)