Leaders of our nation's nonprofit sector are vehemently opposing the cap on itemized deductions proposed by President Obama as a way to help pay for the American Jobs Act. Instead of acting out of a concern for the common good, these charity leaders have been acting to protect the narrowest fiscal interests of the nation's largest nonprofits. They would be wise to reverse course and support the President's plan - including provisions for how it is financed - in a commitment to fairness and out of enlightened self interest.
Supporting the jobs bill promotes fairness in the tax code, which in the long run, benefits nonprofits and the public. The current system of deductions unfairly rewards the charitable choices of wealthy donors and undervalues those of average Americans. Donors who earn enough to be in the top tax bracket get a 35 percent subsidy on their gifts whereas middle-class donors get only a 15-20 percent subsidy. Most Americans don't get any subsidy at all for their donations because they don't itemize.
Taxpayers end up subsidizing multi-million dollar gifts to already well-endowed universities while they avoid subsidizing smaller gifts to food pantries, community arts groups, homeless shelters and advocacy organizations.
This is patently unfair.
Subsidizing nonprofits by allowing donors to deduct charitable contributions from their taxable income is good for the nation. It incentivizes giving and ensures our society maintains a plurality of ways to fund nonprofits that serve the common good. Our elected representatives shouldn't be the only ones to decide what's needed; it's beneficial for all of us to have tax policies that subsidize a variety of visions for how to address pressing problems.
However, we should strive for a system that treats donors equitably, regardless of their income. Any change to the tax code that moves us closer towards equally valuing the charitable choices of wealthy Americans and others is a change in the right direction. Obama's proposal is a small step, as it will reduce the subsidy for the richest taxpayers from 35 percent to 28 percent.
Supporting the American Jobs Act is also in the enlightened self-interest of our nation's nonprofit sector. Leaders of the charitable sector who have opposed the plan, say it will reduce charitable giving and cost jobs in the nonprofit sector. They're wrong. Most nonprofits won't see any decline in giving if the current proposal is enacted and they might even see increased revenue.
Research and history strongly suggest that capping deductions at 28 percent won't have much effect on giving. People give because they want to make a difference, not because of the tax deduction. The Center on Budget and Policy Priorities predicts that the proposed change may reduce giving by 1.3 percent, and the Center on Philanthropy estimates it will be 2.1 percent. While these figures are not insignificant, what matters more is the overall state of the economy, how much disposable income people have and how secure all donors or potential donors feel about their financial futures.
Giving will increase when we once again have a healthy economy. If the American Jobs Act works, it will reduce demand for services from some nonprofits, increase the disposable income of potential donors and increase tax revenue so that governments can make good on their contracts with nonprofit service providers and stop offloading services to the nonprofit sector.
By helping to get our economy back on track, the American Jobs Act might possibly do more good to promote charitable giving and strengthen the nonprofit sector than any other single intervention.
The proposal to cap itemized deductions will affect only a tiny fraction of taxpayers - those with household incomes above $250,000. Additionally, charitable deductions account for only 13 percent of revenue lost through itemization while mortgage interest and various state and local taxes account for more than two-thirds of the foregone revenue.
By opposing this plan, nonprofit leaders are aligning themselves with the real estate industry and with the highest income taxpayers. Is that really who we should be standing with?
If there is a better way to pay for the American Jobs Act, let's hear it. But leaders of the nonprofit sector are supposed to promote the common good, not defend the narrowest self interest of their wealthiest donors.
Aaron Dorfman is executive director of the National Committee for Responsive Philanthropy (NCRP), a watchdog and advocacy organization in Washington, D.C.