Lobbyists’ Labours Lost?

Issues pressed by charity leaders are left out of historic tax bill

This month, at what might be the pinnacle of their influence with a president, the nation’s charities find themselves essentially shut out of the most important and largest piece of federal tax legislation passed by Congress in two decades.

As President Bush signed into law a $1.35-trillion, 10-year package of tax cuts, charities were mourning the absence of a variety of key provisions to encourage giving that they had high hopes for, most of which had been endorsed by Mr. Bush during his presidential campaign and in his budget proposal to Congress earlier this year.

Leaders of nonprofit organizations were left scratching their heads over what went wrong with their lobbying efforts — including a lack of expertise, money, and coordination on strategy — even while making plans to redouble efforts to win victories on Capitol Hill later this year and during the remainder of the Bush administration.

Among the biggest disappointments to charities, Congress failed to pass Bush proposals that would have:

• Allowed people who do not itemize on their federal income-tax returns to write off charitable deductions.
• Permitted people to donate to charity directly from their individual retirement accounts, without incurring taxes.
• Increased the annual limit on charitable deductions taken by corporations from 10 percent to 15 percent of a company’s taxable income.

Some charities were also upset by a provision that was included in the final law: the gradual phasing out of the estate tax. Some nonprofit groups fear that such a reduction and repeal could hurt giving because it will lessen and ultimately remove an incentive for the wealthy to leave charitable bequests.

Under the law, the amount of an estate that is exempt from taxation will rise to $1-million next year from the $675,000 threshold now in place. That figure will increase to $3.5-million in 2009. And the estate tax will be repealed in 2010, but only for one year, since the entire tax-cut legislation expires in 2011 unless reauthorized by Congress.

But many of the organizations lobbying for tax incentives to increase charitable giving claimed victory because Congress did not immediately and permanently eliminate the estate tax, as the president and many House and Senate leaders had once hoped to do. Those organizations pledged to fight in coming years to repeal the repeal. The Treasury Department had estimated that abolition of the estate tax would reduce charitable bequests by between $5-billion and $6-billion a year.

One reason the lobbying groups that represent the nonprofit world didn’t have more to celebrate in the tax law, said Gary Bass, executive director of OMB Watch, is that when it comes to pushing major tax proposals through Congress, “the charitable community is just not very skilled.”

Mr. Bass, whose organization monitors government spending, added: “It was truly an uphill battle because most of these charity-giving issues were not perceived in Congress as central to a conservative tax-cutting agenda. Charities in general are not tax specialists, and we’re not expert at doing such legislative campaigns. The result is that, other than successfully fighting the estate-tax repeal, we didn’t do that great on the tax bill.”

Clearly, said some observers, charities failed to nail down the necessary support of the key members — and staff members — of the House Ways and Means Committee and the Senate Finance Committee, who in the final days and hours of deal-making assembled a tax bill that left charities out.

“Although there was congressional support for the charitable provisions, there wasn’t a large cadre of senior Ways and Means and Senate Finance people who had the charitable issues as a No. 1 or No. 2 or even No. 3 priority in the last-minute decision-making process,” said Sheldon E. Steinbach, vice president and general counsel of the American Council on Education.

‘We’ve Got to Grow Up’

Having enough money to support needed lobbying efforts was also an issue.

“The defeat of all things charitable in this tax bill is cause for alarm,” said Douglas E. White, a planned-giving consultant in Washington.

Mr. White suggested that charities and planned-giving experts look at new ways to support organizations that lobby, or could lobby, on these issues.

“We had the president’s support, at least in his heart if not in his national wallet,” he said. “If we’re truly going to be a profession we’ve got to grow up. This is no longer the Kansas of Dorothy’s childhood. This is the 21st century, where money makes the world turn. And proximity to Congressional ears is very expensive these days. Without it, you may as well have those guys and gals, even those who are running for president, simply say they love us, but without any expectation that anything real will be coming our way.”

Few people realistically expected Mr. Bush to veto a tax bill that contained his top priority — large cuts in the marginal tax rates for individuals — just because it did not include the charity provisions he also had hoped for. And he didn’t. But some charity officials wondered whether the White House fought hard enough for the provisions, even as it renewed its support for the same tax measures in pending legislation.

In fact, charities said that their chief prospect for success for tax provisions this year now rests in legislation supported by President Bush called the Community Solutions Act. The bill combines the president’s charitable-giving incentives with his controversial “charitable choice” provisions that would allow faith-based organizations to compete for more kinds of federal grants. It is sponsored by J.C. Watts, an Oklahoma Republican; Dennis Hastert, an Illinois Republican who is House Speaker; and Tony Hall, an Ohio Democrat.

But even the most hopeful observers said the bill’s passage is a long shot, at least this year. While hearings on the Community Solutions Act are expected this summer, some observers think that the entire package is doomed because a number of Republicans and Democrats are opposed to allowing religious groups easier access to government dollars. Others think the tax provisions in the bill will fail because they are expensive and would have to be paid for by raising taxes or cutting other government programs, both of which are considered unlikely.

Charity Coalitions

Many charity leaders privately placed much blame for Congress’s failure to pass new tax incentives aimed at increasing charitable giving on coalitions such as Independent Sector, which represents many of the country’s biggest charities and grant makers.

For some time, a top priority of Independent Sector has been pushing Congress to restore the charitable deduction for people who do not itemize on their taxes. The tax break, which was briefly allowed under federal law in the 1980’s, would cost the Treasury as much as $85-billion over a decade, according to government estimates. But the provision could bring charities as much as $160-billion in new gifts over that time, according to a study by PricewaterhouseCoopers that was paid for by Independent Sector. The cost would vary depending on whether donors would be allowed a full deduction or a partial deduction for their contributions.

Critics of Independent Sector said the organization was naïve in its approach to lobbying Congress. Perhaps mesmerized in part by the Bush administration’s strong backing of the proposal, the coalition early on should have better realized, some said, the enormous difficulty of passing the costly provision — even though a similar proposal had gained the support of 150 members of Congress last year — and made clear that it would accept a muchscaled-down version of the break to make it cheaper and thus more acceptable to House and Senate members.

Independent Sector also came under fire for waiting to unveil its latest campaign to drum up grass-roots support for the non-itemizer proposal — “Help America Give,” which involved getting local charities, donors, and volunteers to contact their elected officials — until late April, which was late in the legislative-drafting process. And two of the coalition’s lobbyists came on board just three months ago: Patricia Read, former head of the Colorado Association of Nonprofit Organizations, and Fred Grandy, a former Republican House member who once headed Goodwill Industries International.

Concern About Cheating

Other observers said that some members of Congress likely were worried that extending the charitable deduction to non-itemizers could increase the opportunity for people to cheat on their tax returns by claiming deductions for small gifts they never made.

Ms. Read acknowledges that Independent Sector got a late start with its Help America Give campaign. But she said the chance for charities to get a large-scale provision for non-itemizers in the tax bill took a nosedive when Congress recently reduced the size of Mr. Bush’s original tax-cut package from $1.65-trillion to $1.35-trillion, because the money to fuel such a provision dried up.

Ms. Read said that Independent Sector had, in fact, made clear to policymakers on Capitol Hill that a scaled-back version of the non-itemizer deduction would have been acceptable. In fact, she said that the coalition made far more progress in getting the attention of key members of Congress, and their staff members, than critics allow, especially in the past month.

“Members of Congress were hearing from constituents, they were getting the pressure,” said Ms. Read.

Independent Sector’s positions got important support from Senator Rick Santorum, a Pennsylvania Republican, who, though not a member of the Senate Finance Committee, was an influential proponent of charity tax provisions. The senator made a strong speech to his colleagues last month expressing his disappointment that the tax bill omitted those proposals while pledging his continued support of them.

Retirement Plans

Some planned-giving experts were disappointed at the failure of efforts by the National Committee on Planned Giving, an association based in Indianapolis, to help get Congress to approve a Bush-backed provision to allow people to donate to charity from their individual retirement accounts without incurring taxes. The Senate approved a version of the plan that would have taken effect in a few years, but the final tax bill omitted it.

Among other things, the planned-giving committee encouraged its members to call, fax, or send e-mail messages to House and Senate members.

J.J. MacNab, a Bethesda, Md., consultant who specializes in planned giving and tax planning, said she realizes that the National Committee on Planned Giving was working hard with limited resources to drum up support. But Ms. MacNab said that when she ran into three senior Senate tax lawyers on Capitol Hill in March after a hearing on charity issues and asked them what they thought of the committee, none of the staff members had even heard of it.

“E-mails don’t work,” Ms. MacNab told colleagues on a planned-giving e-mail discussion list. “The average senator receives 55,000 each month and the average representative receives 8,000. If the charity world wants to accomplish something meaningful, it has to get humans in front of elected officials and their staff” to make their case on legislation, she said.

What’s more, said Ms. MacNab, charities need to do a much better job of getting reporters to write about the importance of their efforts on Capitol Hill in order to get leverage among members of Congress. “Charities don’t have much to offer financially, but they do have excellent P.R. potential.”

Luck and Leadership

Mr. Bass, of OMB Watch, said that the fight over the estate tax showed how coalitions of charities can achieve success. At first, he said, many nonprofit organizations were hesitant to oppose repeal of the tax because their board members were nervous about possibly offending wealthy donors. But as lobbyists and coalitions spread the word about the potentially devastating effect of a repeal on charitable giving — and as prominent philanthropists such as William H. Gates Sr., the father of Microsoft founder Bill Gates, publicly opposed repeal — “it eased the way for arts and other organizations to take a stand,” said Mr. Bass.

He added: “A lot of these lobbying campaigns have a lot to do with luck. But they also have to do with leadership.”

Some other charity officials, however, questioned the wisdom of charity coalitions’ aggressively fighting an estate-tax repeal, especially since not everyone agrees that most charities really would have been dramatically hurt by it. “By opposing repeal, these groups may have alienated and incurred the wrath of Republican and Democratic members of Congress who might have otherwise supported them on the other charity-tax provisions,” said Mr. Steinbach of the American Council on Education.

Ms. Read of Independent Sector said charity coalitions can learn from what she sees as the strategy of higher-education lobbyists who won $30-billion in education-related tax provisions in the final bill.

“Higher-education interests have more money and a long-term structure in place that allows their councils and associations to get to the individual college presidents and board members who know the senators and congressional representatives personally,” she said. “While the rest of the nonprofit community has less money and relies more on grass-roots lobbying efforts, there’s a lot more we can do to follow their example and step up our efforts locally.”

Despite the disappointments this time around, Ms. Read said she remains optimistic. “We are extremely disappointed that we weren’t in the first tax bill of the Bush administration, that Congress ignored what the president was talking about, and that the White House didn’t put more pressure on Congress, although we’ll never know exactly how much pressure it did or didn’t put on,” Ms. Read said.

“But people are talking about this president as if everything is going to be done in his first six to nine months,” she said. “We have three-and-a-half more years under this president, and the nonprofit community would be well served to remember the long haul.”