The Devil is in the Details: An Assault on Charitable Giving

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By Geoff Davis

In these difficult economic times, more Americans are turning to non-profit and charity organizations for assistance.  From local soup kitchens and homeless shelters to major philanthropic organizations, like the Red Cross and Goodwill Industries, charities across the nation are reporting an overwhelming increase in demand for their services.  However, due to a short-sighted provision included in President Barack Obama’s budget blueprint for fiscal year 2010, some charities may be unable to continue to respond to the needs of our communities.

The administration’s nearly $4 trillion budget plan includes a provision that could reduce charitable giving by nine billion dollars a year.  Currently, taxpayers may “deduct” a percentage of the value of donations made to charitable organizations from their taxable income.  The President’s budget proposes to limit the charitable giving deduction for individuals who make more than $200,000 and families with incomes greater than $250,000.  

The economic crisis has already hampered the ability of charities and community organizations to provide for our neighbors most affected by the recession.  Charities have overwhelmingly expressed concern that this proposal will be a disincentive to donors.  According to the Internal Revenue Service, Americans gave $147.7 billion in charitable donations in 2006.  Nearly half of these donations were from taxpayers making more than $200,000.  

The Tax Policy Center, a research organization comprised of nationally recognized experts in tax, budget and social policy, estimates that President Obama’s proposed cap on charitable deductions would decrease the annual total of charitable contributions by nine billion dollars Some economists estimate the decrease in donations could be even greater: Treasury Department economist Bradley Heim estimates that top-earners will cut their donations by between 0.5 and one percent for every percentage-point increase in giving costs.  As a result, donations may fall by ten to twenty percent, leading to an overall drop of $8.1 billion to $16.2 billion in donations each year as a direct consequence of the budget proposal.

Charities already are anticipating a sizeable decrease in corporate giving; approximately 25 percent of corporate giving in recent years has come from foundations tied to the now-ailing banking and finance sector.  Nationwide, many charities are also facing challenges due to the credit crunch, which has made it more difficult to secure bank loans, and due to state and local government budget shortfalls that often lead to delayed payments for services.  Demand for charitable services is not expected to slow in the near future.  In fact, the summer months are expected to place additional strain on charities’ resources, especially food supplies because children from low-income families will not receive meals regularly during the school day.

In 2006, there were 1.9 million charitable non-profits in the United States.  Kentucky is home to nearly 4,000 of these organizations, and more than 500 are located in Kentucky’s Fourth District.  As the recession continues to deepen and unemployment rates climb to new heights, the government must not implement policies that will make it more difficult for these organizations to provide much-needed relief to our families and communities.  As Congress continues work on the budget, I hope the President will work with us to craft better solutions to the challenges we face.

Congressman Geoff Davis