Should we be lobbying now to try to protect the charitable contribution deduction as Congress works to prevent the country from going over the “fiscal cliff”? —Heard at several 501(c)(3) charity board meetings last week.
If Congress tries to raise revenue by curbing deductions and “reforming” the Tax Code, the charitable contribution deduction is one clearly visible target. Therefore this is the time to let your members of Congress know how important charities, and the contributions that support them, are to the dynamism of our society.
This is particularly true if Congress attempts to raise revenue by “capping” all deductions at a particular level and letting the taxpayer choose which ones to claim. Unlike so many of the other transactions leading to deductions, charitable contributions are entirely voluntary. A taxpayer will claim the mortgage interest deduction, the state and local tax deduction, and the medical expense deduction first because they don’t have much control over those payments. If those deductions, and others like them, add up to the cap, any tax benefit from a charitable contribution deduction will be totally lost. To the extent that a donor considers the tax impact, either in deciding whether to make a contribution or in deciding the amount of a contribution to make, that advantage would be lost. To preserve that advantage and to continue to encourage charitable contributions, the charitable contribution deduction should be totally excluded in calculating any cap on total deductions if Congress goes that route in attempting to raise revenue.
This is not a partisan issue. Diminution of the charitable contribution deduction would hurt organizations at all points on the political spectrum.
Four years ago, we argued that charitable contributions exceeding the prior two year average should be granted a double deduction in order to provide an immediate economic stimulus. The rationale of that argument is just as valid today. The vast majority of charitable contributions are spent in the U.S., in every state and Congressional district. Most are spent quickly, particularly now that the need for the services charities provide has so significantly increased. And they are spent entirely by organizations that we view overall as good for our society. It is hard to find a better qualitative and quantitative economic stimulus than charitable contributions.
Charities clearly have the legal right to lobby on issues of importance to them. (See Ready Reference Page: “Lobbying Rules Create Opportunity for Charities”) Don’t let this fight be waged solely by the Independent Sector, the Council on Foundations, the National Council of Nonprofits and a few other national organizations. Every 501(c)(3) organization that cares about its donors and their donations should make its views known directly to its Senators and Representatives — now, while they are still trying to figure out what they may be willing to do.