Budget Talks Could Put Tax Breaks for Donations in Peril

As members of Congress and the White House prepare for this weekend’s closed-door negotiations on a deficit-reduction measure, many nonprofit leaders are worried that charitable deductions for wealthy Americans could face strict new limits.

President Obama this spring said he supports limiting deductions for wealthy people as a way to help bring more tax money into federal coffers—and that would include deductions affluent people take for gifts to charity.

Mr. Obama’s proposal is very much on the table heading into this weekend’s negotiations, as federal lawmakers face pressure to hammer out a deal by August 2 to raise the federal debt ceiling.

Because of that pressure, some nonprofit leaders say they are worried that lawmakers who have previously opposed any changes in the charitable deduction may support the idea just to forge a compromise.

“What the debt ceiling does is force a timeline in which people have to make deals that they may or may not fundamentally agree with, because we’re simply out of time,” said Andrew Schulz, vice president for legal and government relations at the Council on Foundations. “This makes it harder to deliver the message [to maintain the current deduction], especially if these deals are not made in the open Congress with everyone participating in the conversation.”

The White House has said meetings to work out a deficit-reduction plan are closed to allow for progress to be made. But the secret nature of the discussions has some nonprofit leaders worried.

“When negotiations are happening behind closed doors, and there’s a looming deadline, and the administration has said that everything is on the table, there is definitely a sense that it’s a critical time,” said Brian Flahaven, director of government relations at the Council for Advancement and Support of Education, an organization that represents fund raisers at colleges and private schools.

The Obama administration says that limiting tax write-offs for items such as gifts to charity and mortgage interest would reduce the deficit by $320-billion over 10 years and would eliminate inequities in the tax code that the president says unfairly benefit the rich.

Nonprofit advocates are concerned that lumping in all kinds of deductions, rather than focusing on the charitable deduction by itself, puts them at a disadvantage in the deficit-reduction debate.

“This dilutes our ability to say how it affects charitable giving,” said Mr. Schulz. “The charitable deduction is different from every deduction in the tax code. It rewards people for activity that has no benefit to them.

“We’ve defeated a cap on the charitable deduction two years in a row, but at the end of the day, the realities of the economy and the debt crisis facing the country are just so much more pressing than any single sector, whether the charitable sector or others, can mobilize on.”