January 13, 2013 | Read Time: 10 minutes
Washington
The threat that a deficit-cutting Congress might limit the value of the charitable deduction has ignited a brand of advocacy that is rarely seen in the nonprofit world.
Hundreds of charities across the country contacted lawmakers last month to urge them to reject proposals they say would dampen giving. Nonprofit associations have formed coalitions, sent lobbyists to Capitol Hill, paid for advertising, and met with White House officials.
They won a significant victory at the start of the year when Congress and the White House adopted a deal to head off a “fiscal cliff” of tax increases and across-the-board spending cuts that did not include any major change to the charitable deduction.
But the battle is not over. And a four-week frenzy that preceded the fiscal-cliff deal exposed some rifts that could hamper nonprofit unity as Congress renews its quest to rein in the federal budget deficit and overhaul the tax code.
Success, for Now
Nonprofits split on whether to publicly support President Obama’s proposals to raise taxes on the wealthiest 2 percent of Americans and whether to put as much energy into fighting spending cuts as protecting the charitable deduction.
Those philosophical differences have been bubbling in the nonprofit world since Mr. Obama first proposed in 2009 limiting the tax savings that wealthy people can get for their charitable gifts.
But the White House raised the stakes by wooing charity leaders to back its tax-increase plan as the fiscal-cliff deadline neared.
Some nonprofit leaders agreed to support the administration, while others rejected the overtures as partisan politics—a division that could continue to shadow nonprofit advocacy as new budget-cutting deadlines loom.
For now, nonprofit advocates are savoring their success at preventing any big changes to charitable incentives and even convincing Mr. Obama to temper his plans.
But a reconstruction of how they achieved their success, and what problems they encountered, shows what charities and their lobbyists can expect in 2013.
Unacceptable Choices
When a select group of nonprofit leaders and senior Obama administration officials met for a rare White House sit-down amid fevered fiscal-cliff debates last month, neither side was prepared to budge from longstanding differences over the charitable tax deduction.
Nearly four years had passed since the Democratic president first stunned nonprofits by proposing to limit the tax savings wealthy donors receive for charitable gifts to 28 percent—a plan they had repeatedly forestalled.
But the political landscape had shifted due to the year-end deadline that would usher in massive spending cuts and tax increases.
At the meeting on December 4, White House officials made it clear that in their view, the charitable deduction was now facing one of two possible fates: the president’s proposal or the more-draconian Republican plan emerging in Congress, which would both limit the dollar value of itemized deductions and impose higher spending reductions on many of the programs that finance nonprofit operations and the people they serve.
Many nonprofit leaders worried they were entering the final round of a fight that had largely defined their first-term relationship with the president, whose proposal appeared closer than ever to passing.
“For anyone watching this debate in December, I think most people would have said there is a very good chance there will be new limitations on the charitable deduction,” says Steve Taylor, senior vice president for public policy at United Way Worldwide.
Hundreds of Meetings
As 13 nonprofit and foundation leaders were holding the meeting at the White House in early December, hundreds of charity officials from across the United States were gathering in Washington for an intensive push on December 5 to show lawmakers their concern about limits on the charitable deduction.
The guest list at the White House meeting—compiled by Diana Aviv, chief executive of Independent Sector, a coalition of 600 charities and foundations—included leaders from the American Heart Association, Catholic Charities USA, Council on Foundations, United Way USA, and several other major organizations.
They were all united in opposing the president’s plan to limit the deduction.
Joining that group was one outlier: Aaron Dorfman, head of the National Committee for Responsive Philanthropy, a liberal foundation-watchdog group. The White House invited him because he had publicly urged those larger associations to advocate more for tax increases to avert damaging spending cuts than for a tax break for wealthy donors.
“It’s time for the nonprofit sector’s leadership to face facts,” Mr. Dorfman wrote on a blog before the meeting. “Government needs sufficient revenue to play its proper role in society. Elections have consequences, and President Obama won reelection convincingly with a promise to ensure the wealthiest among us pay their fair share.”
As the nonprofit leaders took their seats at a long table in the Roosevelt Room, Ms. Aviv sat directly across from White House chief of staff Jacob Lew, who was flanked by other senior advisers.
The White House had a simple message: Instruct the foot soldiers gathering for their lobbying day the next morning to tell Congress they support President Obama’s plan.
A Partisan Request
The request for overt partisan backing met with no support at first, and Republicans called the White House effort a “bullying” tactic.
The next morning at a Senate office building, about 250 nonprofit officials met at a breakfest session organized by the Charitable Giving Coalition, a network created by groups including the Alliance for Charitable Reform, Association of Fundraising Professionals, and Council on Foundations.
Stacey Stewart, head of United Way USA, and Rev. Larry Snyder of Catholic Charities rallied the leaders to convey a simple message to lawmakers: Preserve the tax deduction and spare struggling charities from further spending cuts. None mentioned tax increases.
The coalition held hundreds of meetings on Capitol Hill that day and found few lawmakers who supported limits to the deduction.
But the White House continued its own lobbying.
Later that week, Jonathan Greenblatt, director of the White House Office of Social Innovation and Civic Participation, held several conference calls to ask nonprofits to support the president on tax increases and the 28-percent limit, which estimates show could reduce charitable giving by between $2-billion and $7-billion annually.
Mr. Greenblatt also suggested publishing supportive newspaper opinion pieces.
Obama officials published a blog that week stating that a Republican plan for a $50,000 cap on itemized deductions would reduce charitable giving by more like $15-billion a year, as taxpayers maxed out the cap on deductions for mortgage interest and local taxes.
A 28-percent limit means donors would save only $280 in taxes on a $1,000 gift, as opposed to getting the percentage that is tied to their tax bracket if it is higher than that.
The fiscal-cliff deal increased the top income-tax rate to 39.6 percent—thus offering a tax savings of $396 on that same gift.
Sidestepping the Politics
White House officials also met individually with other nonprofit leaders—including Tim Delaney, chief executive of the National Council of Nonprofits, who was invited for breakfast at the White House. (He declined to say with whom.)
It didn’t take long for organizations to declare publicly where they stood on the president’s request for support just days after the White House meeting.
Some refused, noting their long-held policy of remaining nonpartisan.
The Alliance for Charitable Reform, the lobbying arm of the Philanthropy Roundtable, an association made up mostly of conservative foundations, said charities “should not be forced to enter this political wrangling.”
The American Red Cross said it “takes no position on the various proposals to address the fiscal cliff.”
Independent Sector stated that it was not interested in “getting in the middle of a partisan political struggle.”
Then it paid for a two-page ad that was published on December 10 in the Capitol Hill newspaper Politico, urging Congress and the White House not to “push charities over the fiscal cliff” by limiting the charitable deduction. It made no mention of supporting tax increases.
“The ad in Politico seemed to stir things up quite a bit,” says Gary Bass, executive director of the Bauman Foundation and a veteran Washington nonprofit activist. “The Republicans responded that their intent is not to undermine charities.”
It appeared that the traditional alliances were holding firm, as no organization that had attended the White House meeting had supported Mr. Obama’s tax-increase plan, except for Mr. Dorfman’s.
A day after the newspaper ad, however, Independent Sector’s board voted unanimously to alter its public-policy position. Instead of generally calling for more revenue, as it had done in the past, it supported “a plan that includes a modest tax increase on the 2 percent of Americans who can most afford it,” mirroring President Obama’s language.
Ms. Aviv said the statement was not in response to White House pressure and that the organization did not relent in its opposition to the 28-percent cap.
Shrewd Move or Betrayal?
But other leaders saw the move as a betrayal of their united front by Ms. Aviv, who is often the public face of nonprofits. (For example, she was quoted prominently in a December New York Times article about the charitable-deduction fight, and her picture appeared twice with the article.)
Some are still bitter about a similar move Independent Sector took in 2009, when it issued a statement saying Mr. Obama’s proposal to limit the charitable deduction to help pay for a health-care overhaul offered charities a “Solomon’s choice,” since many agreed the country’s health system needed fixing.
The group has faced pressure from some of its members to balance its support of the charitable deduction with calls for more tax revenue that could help charities that rely heavily on government money or support policies that could help vulnerable people.
Mr. Taylor, who serves on Independent Sector’s public-policy committee, says that long before the White House meeting, “we had a very robust discussion about where Independent Sector should be on the question about revenues or tax rates,” he said. “This wasn’t a new issue that Independent Sector had struggled with.”
Outside observers say the shift in position is unlikely to hurt Independent Sector. It gave the president added support without alienating Republicans in Congress who are unlikely now to agree to limit itemized deductions because they consider that approach a tax increase—and they want to focus on spending cuts.
“No one is looking to use the tax code to hurt those who disagree with us,” says Curtis Dubay, senior tax-policy analyst for the conservative Heritage Foundation.
Exempting Charities
The first sign that the White House was paying attention to the nonprofit advocacy came on December 18, when charity leaders learned that the president planned to propose a 28-percent cap on itemized deductions, as he had consistently in the past, but to carve out a higher, 35-percent limit for charitable gifts.
In the end, even that proposal was excluded from the fiscal-cliff deal, which limited some itemized deductions for wealthy people in a way that is expected to have a minor impact on giving. It also raised the top tax rate for wealthy people from 35 percent to 39.6 percent—although for fewer people than the 2 percent favored by President Obama and Independent Sector.
A Matter of Priority
Some view the interaction with the White House as a sort of coming of age for nonprofit advocacy. “Our inclusion hasn’t been customary, but it reflects that the nonprofit sector has been finding its voice,” Mr. Delaney says.
Ms. Aviv says White House officials told her they had received the nonprofits’ message. But the cooperation may be short lived if President Obama proposes a 35-percent cap again.
“We’re well aware that as tax reform gears up over the next six to nine months the charitable deduction will again rear its ugly head, and we are poised to once again defeat it,” says William Daroff, Washington director of the Jewish Federations of North America.
Not everyone thinks that battle should get priority with billions in spending cuts still threatening social-service nonprofits.
“We are now faced with the potential of cuts to low-income programs and to core programs that serve the middle class,” says Mr. Bass. “So in some respects, we’re in a worse position than ever. The nonprofit sector needs to speak loudly about the need for more revenue and that spending cuts are not the appropriate step.”
