Nonprofit Officials Prepare for Capitol Hill Fight to Preserve Giving

President Obama’s plan to limit the tax break wealthy people get for their itemized deductions, including charitable gifts, is dead—at least for now.

But nonprofit leaders who feared that a change in tax policy would hurt giving aren’t yet breathing a sigh of relief even though the president’s effort to attach the limits to a high-profile jobs bill has failed.

In fact, charity officials are bracing themselves for what could be a lengthy lobbying effort to make sure political pressure to close a mounting federal deficit doesn’t lead to changes that would stifle their efforts to raise money.

“As our lawmakers continue working to reduce annual deficits and improve our country’s fiscal health, we must remain steadfast and united,” Diana Aviv, president of Independent Sector, a coalition of charities and foundations, cautioned in an e-mail to supporters after Senate Democrats had rejected the president’s proposal to limit itemized deductions.

“Similar misguided attempts to cap or eliminate tax incentives for charitable giving could also surface as Congressional tax-reform efforts begin in earnest.”

Rejected in Senate

As part of the jobs bill outlined in September, Mr. Obama had proposed limiting to 28 percent the write-offs that wealthy people can get for their itemized deductions. Today donors in the top tax bracket get write-offs of 35 percent.

His plan would have applied to people with adjusted gross incomes of at least $200,000 ($250,000 for married couples).

But Senate Democrats rejected that idea, and ultimately the entire jobs bill failed to come under consideration last week.

Declining Generosity

Now nonprofits are watching to see what a bipartisan committee of House and Senate members, charged with devising a deficit plan by Thanksgiving, decide to propose.

They will also be paying attention to a Senate Finance Committee hearing scheduled for this week to consider how some key tax-overhaul proposals would affect charities.

Testifying at the hearing will be several charity leaders and scholars who will discuss how Mr. Obama’s proposal, among others, would affect charitable giving.

One of those testifying will be Eugene Steuerle, a tax expert at the Urban Institute who has been overseeing a project on giving and tax policy financed with a $1-million grant from the Bill & Melinda Gates Foundation.

The project, designed to provide analysis of proposals under consideration, is commissioning research and holding public meetings.

Experts Weigh In

At a session the Urban Institute held this month, scholars sparred over the impact of President Obama’s proposed limits on itemized deductions, which he has offered four times during his presidency,

Joseph Cordes, an economics professor at George Washington University, estimated that the latest version of the measure, in the jobs bill, would have cost nonprofits at least $2.9-billion and perhaps as much as $5.6-billion. He based his analysis on tax data for 2008.

That figure suggests a relatively minor decline, given the more than $290-billion charities raised last year, according to “Giving USA.”

Another scholar at the forum suggested that perhaps the availability of charitable deductions were stymying giving rather than encouraging it. Peter Dobkin Hall, a professor of public affairs at Baruch College, said that in the past century, the percentage of income that people give to charity has declined, even as Congress has added tax incentives to spur giving.

“It may be that people give more generously when they are driven by values and beliefs than by calculations of potential tax savings,” he said.

Tax Policy Questioned

Many nonprofit leaders, however, aren’t convinced that reducing tax incentives would prompt more giving.

And the economists and researchers who presented information at the Urban Institute Forum did little to allay those fears.

For example, they analyzed the effect of a 2010 plan by a deficit-reduction panel created by the president.

The panel, chaired by Erskine Bowles, who served as President Clinton’s chief of staff, and Alan Simpson, a former Wyoming senator, suggested eliminating charitable deductions altogether.

The commission wanted to replace the write-offs with a 12-percent tax credit for charitable gifts. Mr. Cordes said the tax-credit plan would have resulted in a drop in donations of $9.7-billion to $25-billion in 2008.

The wide range in the estimate, he said, was because economists disagree about just how much tax policies influence giving.

Watching Plans Closely

A more moderate reduction would have come from a plan Senate Democrats proposed as an alternative to the itemized deduction limits in the President’s jobs bill.

They suggested that anyone with an adjusted gross income of $1-million or more pay a 5.6-percent surtax, an idea that didn’t get very far with Senate Republicans, who last week blocked the White House bill.

Jon Bakija, an economist at Williams College, said his “back-of-the-envelope calculation” showed that the surtax would reduce giving by a donor who earns $2-million a year by about 2.2 percent.

How much the surtax would affect a larger cross-section of wealthy Americans would vary based on their precise income and giving habits, said Mr. Bakija.

And while the surtax plan appears to have died, nonprofit advocates say it’s smart for fund raisers and other charity officials to keep a close eye on deficit-cutting plans and the research about its effects.

“There are lots of alternatives on the table,” says David L. Thompson, vice president for public policy at the National Council of Nonprofits, in Washington.

“The giving incentive is at risk, and nonprofits need to pay attention to that.”

Suzanne Perry contributed to this article