Plan to Lower Charitable-Giving Deduction Loses Steam but Hangs On

Members of Congress have so far not mustered much enthusiasm for President Obama’s proposal to limit tax breaks for charitable gifts to raise money to help revamp the country’s health-care system. But the plan remains on the table — and the charitable world is still measuring how to respond.

Two organizations representing grant makers — the Council on Foundations and the Alliance for Charitable Reform — have spoken out against the plan, saying it would depress giving during hard economic times. But the National Council of Nonprofits, which represents state nonprofit associations, is still evaluating the issue.

“With our nation in crisis right now, the responsible thing for nonprofits to do is call ‘time out’ to understand the facts and study the proposal,” wrote Tim Delaney, president of the council, which represents state nonprofit associations, in a report to his group’s members. Mr. Delaney said in an interview that members are trying to weigh the potential costs of the proposal to charities against “the potential benefits to the nation as a whole” and he is not sure what stance his group will take.

Independent Sector, a coalition of charities and foundations, faced a similar divide when discussing the proposed limits. Some members argued that they would further harm charities during a time of economic hardship while others argued that bringing down health-care costs would save charities money that could be spent on programs.

Diana Aviv, Independent Sector’s president, says the organization plans to issue a statement that will oppose the charitable-deduction limits while also supporting changes to the health-care system. But because there were “such strong feelings on both sides of the issue,” it also will ask its executive committee and board to consider the issue, she says.

President Obama last month proposed limiting to 28 cents the tax break for each dollar donated that couples earning more than $250,000 ($200,000 for individuals) can get on their income taxes, starting in 2011 — down from 33 cents or 35 cents that people in the top tax brackets now get.

The change, which would apply to deductions for mortgage interest and state and local taxes as well as charitable donations, would raise a projected $318-billion over 10 years as a “down payment” for a plan to expand health-care coverage and bring down its costs, according to the administration.

The proposal would affect about 1.2 percent of households and, in conjunction with other tax changes affecting wealthy families, dampen giving by about $9-billion in 2011, according to an analysis by the Tax Policy Center, a project of the Urban Institute and Brookings Institution.

Hesitation in Congress

The proposal has drawn fire, or at least provoked concern, on both sides of the aisle in Congress.

“I have not talked to one member of Congress or United States senator who thinks at the end of the day the charitable deduction will be decreased,” says William Daroff, vice president for public policy at United Jewish Communities, an umbrella organization for Jewish social-services groups. Mr. Daroff, a member of Independent Sector’s public-policy committee, is an outspoken opponent of the plan, arguing that charities should not bear the cost of improving health care, even if that’s a worthy goal.

Some Congressional heavy hitters have publicly expressed misgivings about the measure — notably Sen. Max Baucus, chairman of the Senate Finance Committee, who is crafting his own plan to reshape the health-care system. The Montana Democrat says he wants to explore ways to find savings within the system itself, for example by making employees pay income taxes on health-care benefits above a certain dollar amount provided by their employers.

Sen. Charles E. Grassley of Iowa, the senior Republican on the committee, told a legal seminar that he questioned “the wisdom of providing any disincentive for giving during this economic crisis,” while Sen. Kent Conrad, Democrat of Nebraska and chairman of the Senate Budget Committee, told the Morning Joe cable television program that he had heard from many colleagues who “don’t want to do anything that would discourage charitable contributions at a time charity is so critically important to people.”

But the Senate majority leader, Harry Reid, Democrat of Nevada, has reportedly not ruled out supporting the proposal. Better health care “would greatly reduce burdens on the charitable sector to provide uncompensated health care to millions who lack insurance,” his aide, Jon Summers, said in an e-mail message to the Las Vegas Review-Journal.

Rep. Charles Rangel, who is the chairman of the House Ways and Means Committee — which drafts changes in the tax code — said he “would never want to adversely affect anything that is charitable or good,” according to news reports. However, he later told the New York Daily News that he did not mean that as “an objection or disagreement” with President Obama.

“I have no clue as to how this would impact contributions being made,” he told the newspaper. “But you can bet one thing: I’m going to find out.”

Open to Change

White House officials, meanwhile, have said that they are open to other ideas for financing health-care changes, and the charitable-deduction plan could become the subject of horse trading once Congress starts working out the nitty-gritty details of those changes.

However, the administration still publicly stands by its proposal. Kenneth Baer, communications director at the Office of Management and Budget, said President Obama’s plan to keep the estate tax — which encourages giving as a way to lower taxes on inherited wealth — would likely channel more money to charities than they would lose from the deduction limits.

Mr. Delaney of the National Council of Nonprofits says that even though charities are divided on the plan, he’s hoping the debate will prompt them to get more involved in public-policy issues.

“It’s time for us to pull up a chair and have a voice,” he says.