During the 2012 presidential campaign, nonprofit organizations wondered how their sector would be affected by the outcome of the election. With the results now known, it is our hope that President Obama will prove to be a strong supporter of the sector. He has a personal history of active involvement in charitable activity. Examples include:
– A history of community organizing in Chicago directing a nonprofit called the Developing Communities Project, which works with churches to aid low-income neighborhoods.
– Heading the Illinois Project Vote which helped register black and low-income voters in Cook County.
– Serving as a board member of the Joyce Foundation and of the Woods Fund of Chicago; the former supports the development of policies to improve the quality of life in the Great Lakes region and nationally, while the latter works to increase opportunities for disadvantaged people and communities in the metropolitan area.
– Chaired the board of the Chicago Annenberg Challenge, a project to improve public schools.
– Together with Michelle, the Obamas donated about 14% of their gross income in 2010, and 22% in 2011, figures significantly higher than the national average.
Against this background, President Obama will undoubtedly remain a strong advocate for the nonprofit sector. However, the process of avoiding the fiscal cliff has raised a new concern about the possibility of greater limitations on the charitable deduction for donations, particularly from higher income individuals, traditionally an important source of support for nonprofits.
While the deal avoided extreme limitations on charitable deductions, and does not place a flat percentage cap on charitable giving, it does call for a reinstatement of an old law known as the “Pease limitation”. Named after Rep. Donald Pease (D.Ohio), this law limits itemized deductions for higher-income Americans. i.e. individuals earning at least $250,000, and married couples with incomes of at least $300,000. The limit reduces charitable and other itemized deductions by up to 3%.
Important nonprofit advocates like the Independent Sector, a coalition of about 600 charities and foundations, expressed concern about this bill. The IS President, Diana Aviv, commented that “The big question for us now is, if we are [also] increasing rates on folks … does the combination create a greater disincentive for people to give?” Religious organizations expressed strong concern, with Southern Baptist church-state expert Richard Land stating: “This would be catastrophic in its impact, particularly on those large gifts that many religious organizations, colleges, universities and ministries, as well as churches, depend upon for continuing operations…” Ari Fleisher, former press secretary to President George W. Bush, was quoted in The Wall Street Journal: “I increased donations to charities in 2012. This deal limits my deductions so I, and many others, will likely donate less in 2013.”
On the other hand, tax and financial planning expert Bernie Kent, stated that the Pease amendment, although couched as a limitation on itemized deductions, in fact had little to do with itemized deductions since it was based on income earned, not deductions taken. He suggests that tax professionals and charitable giving professionals clearly explain this concept to donors to soothe their fears.
We will continue to monitor the talks in Washington on the interrelated matters of tax policy, the debt ceiling, and the fiscal deficit. The fiscal cliff deal has only stalled the problems temporarily and we must hope that President Obama and the Congress can reach an agreement that will not only prevent the collapse of the economy, but will also encourage our nation’s long tradition of private philanthropic support for our charitable sector.
For more information regarding these issues, refer to the links below:
Leo Cruz, Deputy Director
Nonprofit Sector Resource Institute
Seton Hall University