The Charitable Deduction Conundrum

Unless you are an ostrich with your head in the sand, you know that the charitable tax deduction has been the subject of much debate over the last few months.  For the last four years, President Obama has wanted to lower the cap to 28% to help pay for his deficit building universal healthcare program.  A few months ago, Congress has held hearings with nonprofit leaders that gave testimony during the debates over the fiscal cliff.  During the last negotiations, changes were not made to the charitable deduction, but it is ready to be brought up again.  Now, the Oregon legislature has brought up the subject with bills in both the House and the Senate.  If President Obama gets Congress to approve a cap on charitable deductions, it could cost the sector approximately $5.6 billion. (Obama Plan Could Cost Nonprofit Sector $5.6 Billion a Year)

There seems to be two philosophies at play in this debate about the charitable deduction.  The first is the traditional thought that the deduction is an important aspect of a donor’s willingness to give, as it provides the donor with an incentive to give more since the money given will not be taxed at a higher rate by the Federal and state governments.  The Charitable Giving Coalition, a group of major nonprofits and associations, are of this mindset, as is the Nonprofit Association of Oregon.  Then there are others, like Jack Shakely, and President Obama who believe we should discontinue, or at least cap the deduction at a lower rate, as it tends to benefit the 1% more than anyone else.  These people believe that the government will use the money gained by the higher tax rate more efficiently and wisely.  This will make charities dependent on government largess and increase the size of government.

I support the charitable deduction because it gives a good incentive for giving to a cause and because it allows the donor to have a say where their money goes and how it is used.  I am not a fan of the ways that government spends and often wastes money.  When the government gets involved, there are more administrative costs and expensive bureaucracy. If you look at the state and Federal budget deficits we face, you must question the thought processes of those we elect to represent us.

I believe that the nonprofit sector may have brought this problem on itself.  Congress first created charitable deductions in 1917 to support charities through private giving so they would not have to come to the government for financial support.  Over the past decades, nonprofits have increasingly gone to the Federal and state governments for more and more financial support, seeking grants and contracts for services, becoming quasi governmental agencies, and moved away from actively seeking support from individuals and businesses.  Those governments have given vast amounts of money that they really could not afford to give, creating massive debt.  Nonprofits that have created partnerships with the state of Illinois are now learning from their mistakes, as many have not been reimbursed for their services since July of 2012.  You must also acknowledge that many in the nonprofit sector voted to elect those in the majority that now threaten the charitable deduction nonprofits hold so dearly.

As I mentioned in a past post, nowhere in the definition of philanthropy is government support mentioned.  I suggest that if we in the nonprofit sector want to maintain the charitable tax deduction, we need to stop asking the government for money and concentrate on honing the stories of our values, our successes, and our needs to those individuals who will support us.  If we make our cases successfully, we can return to the true meaning of philanthropy and justify the need for the charitable tax deduction.



About greatergoodfundraising

Richard Freedlund has been active in the nonprofit sector in a number of ways, both professionally and as a volunteer. He is the founder of Greater Good Fundraising, a business that helps schools and organizations raise money for their programs while accomplishing something positive for the community. After living in Oregon for 27 years, he has returned to his hometown of Rockford, Illinois and hopes to make his mark on the nonprofit sector there. He is the father of a talented jazz musician and the son of philanthropic parents that continue to support multiple causes. To contact Richard for consulting, fundraising, or speaking opportunities, email or reach him on @ggfundraise
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