Opinion: Three Ideas for Enlisting Charities to Bolster the Economy

As Barack Obama takes over the White House, his first task will be to stimulate the economy. He should focus on the parts of the economy that have the greatest potential to create or maintain jobs and provide the goods and services that enhance the broader public good. He should focus on charitable organizations.

Although usually overlooked in discussions of the economy, the nation’s one million charitable organizations are a major component of the economy. They have combined assets of more than $3-trillion, and they employ more than 11 million people. They also use the services of at least 60 million volunteers.

Nonprofit organizations accounted for 7 percent of America’s gross domestic product, a larger part of the American economy than transportation (2.9 percent) or agriculture (1.1 percent), but only slightly smaller (perhaps until this year) than finance and insurance (8.1 percent). The nonprofit portion of our economy is larger than the entire economic output of Canada, India, or Russia.

Charities are the primary provider of higher education, health care, and basic scientific research. They are major providers of social services for the disadvantaged, and they regularly provides services that business and government either cannot or will not provide. They include arts and cultural organizations that preserve and enhance the history and diversity of our society. They are considered “charitable” precisely because they provide uniquely for the public good.

To stimulate the economy, Congress should put money in the hands of people who will use that money quickly, at home in the United States, and for purposes that will make a difference to society. We urge President-elect Obama to press Congress to include three provisions as they shape new legislation:

Allow people to claim a double deduction for any increase in the amount they give to charity this year and next.

Americans who increase their charitable contributions should be able to claim a double tax deduction on the amount that their total donations this year exceed their charitable contributions in 2008; the same plan would apply in 2010 for increases in donations from the previous year.

At a time when significant losses of revenue are forcing charities to cut back, the need for their services is growing rapidly. A double deduction would increase charitable giving and help charities maintain or expand their current programs and even to add employees.

Contributions to private foundations, which generally do not distribute their funds immediately, and gifts that are permanently restricted so that they cannot be used immediately should not qualify for the double deduction.

This extra tax break will give an incentive to people who have long been giving but understand that now they need to step up and give more than they have in the past.

When charities have more money to spend, their spending has a significant multiplier effect. A recent study showed that foundation grants made to charities produced more than $8.50 in direct social and economic benefits for each dollar granted.

Some commentators have noted that provisions in the stimulus plan Mr. Obama has backed emphasize infrastructure construction, a goal that disproportionately benefits men because construction is a predominately male industry. Support for charities—which tend to employ more women—will help offset that disparity.

Expand the number of people eligible to give charities money from their individual retirement accounts without paying taxes. . A provision passed in 2006 to allow people 70½ or older to make charitable contributions from their individual retirement accounts without paying taxes on the withdrawal has had a beneficial impact on contributions. If the age for eligibility were lowered to 59½, it would make the same benefits available to the oldest of the baby boomers and would undoubtedly jolt contributions, with the same benefits for the economy as those resulting from the enhanced deduction for increase giving.

Make grants of $3,000 to charities for each new job they create.

Early discussions of the economic stimulus plan suggested that businesses would receive a $3,000 tax credit for creating new jobs. While that idea has been dropped, it should be reconsidered for charitable organizations. Charities could be given a $3,000 grant for creating a new job or as an offset to their employee-withholding tax obligations. (Those grants should probably not apply to churches or other houses of worship so that constitutional issues can be avoided.)

Employees of the nonprofit world spend their money and pay their taxes just as employees of businesses. But these new job-creation grants would do more than help charitable organizations employ more people. They would allow charities to provide more goods and services that protect the socioeconomic fabric of our country.

Charities are a significant part of the economy and should be a significant part of any stimulus plan. At a minimum, these three proposals would be included.

Don Kramer is a lawyer in Philadelphia and editor of Don Kramer’s Nonprofit Issues. David Ross is the public-policy officer of the Pennsylvania Association of Nonprofit Organizations.