Thursday, January 17, 2013

The Charitable Deduction Still Exists. So, For Goodness Sake, Come Off the Ledge!

The Pease Amendment.  If you read the nonprofit sector press at all you have also seen the myriad news and editorial pieces on the for now temporary decision most popularly detailing how much the wealthiest of Americans may deduct from federal income taxes for how much they have donated for a given year (as of 2013 and on).  How much may be deducted has been lowered from previous years.  This reduction of charitable deductions is a reinstatement of the Pease Amendment which was put into place by Congress during the Clinton administration, extended by the Bush administration, and then ended in 2010.

The fiscal cliff has been avoided, for now, but not altogether completely dealt with, yet.  Congress will face the fiscal cliff issue again in March (and possibly develop further legislation created to further deal with the fiscal cliff and economy or not - we do not yet know).

These are the details of the federal decision on charitable deductions, for now:

Provisions in Fiscal Cliff Legislation Affects Exempt Organizations

These are editorials on the American nonprofit sector's state, given the fiscal cliff decision for charitable deduction, so far:

Two Sides of the Charitable Deductions Debate 

Nonprofits bracing for less from rich donors

Non-profits still teetering on fiscal cliff

How Charities Won a High-Stakes Battle On Donor Tax Breaks

Charity Hit By Fiscal Cliff?  You'll Need A Microscope To See It

Charities fear new tax law limiting deductions for big earners as precursor of worse to come.

My take on the issue?  Some of the nonprofit sector's concerns about the reinstatement of the Pease Amendment, while understandable, have raised my eyebrow more than once.

The American nonprofit sector is not only being unified more so now, due to this issue, than it has been in recent years - but it is using its unified sector's voice and communicating with Congress and the President (telling Congress and the President both  - the Pease Amendment is inconsequential and the sector meeting all other federal budget issues part way, or saying that the amendment will harm the nonprofit sector - depending on which unified voice is speaking at the time).

As it is not known what exactly the result will be of the Pease Amendment will be on fundraising, several professional nonprofit affiliations are concerned for the sector's ability to adequately plan 2013 budgets and fundraising goals not only because of the uncertainty but too, because the sector does not know what more (if anything) Congress will do to the charitable deduction (for example, one fear is it will be taken away altogether).  I do not wish to seem indifferent, here, but my response to this concern is to raise an eyebrow.  I understand that uncertainty is well.. uncomfortable but shouldn't the nonprofit sector know (by now, especially - since this amendment has been instated, before) how to budget and plan fundraising for their organizations such that the unexpected might happen (for instance, like in 2001 when the 9/11 tragedy understandably moved much of American donations to the Red Cross and other first responder related nonprofit causes)?  Nonprofits learned, then in particular, to always have as a part of their ratified annual organizational budget and fundraising plan a viable contingency and 'emergency fundraising' plan in place in case one's sector or even (G-d forbid) the nation faces another drastic draw of nonprofit donations away from one's nonprofit's cause or issue.  Nonprofits' leaders should always build 'wiggle room' and 'emergency contingencies' into organizational budgets and fundraising planning no matter: what the economic climate, what the federal authorities do with the charitable deduction or not, and whether we're in a down economy or not.

If anyone who is a leader or professional fundraiser for any American nonprofit feels that their fundraising capacity has been diminished because the tax deduction for charitable contribution has been reduced - I would ask why they believe any of their organization's donors give to their particular nonprofit.  If they truly believe that donors only give donations because they got a tax break at a higher rate but now it's lower (not altogether gone but only lowered) I would frankly question their competency on professional nonprofit best practices and how to fundraise at allDonors do not give (different various fundraising studies have shown) solely because of the charitable deduction.  Any nonprofit (all nonprofits) must make their case to potential donors demonstrating why their specific nonprofit is relevant and needed in the community, what makes them unique (or relevant) compared to other similar nonprofits serving the region, and they must demonstrate the organization's credibility and real potential to be successful at its mission such that actual demonstrable outcomes (of its work) benefit the organization's beneficiaries efficiently and wholly.  This is why donors give.  If a potential or repeat donor sees that a nonprofit is uniquely serving a population effectively and efficiently and has the potential to successfully do so again and again (and especially if that donor is thanked and told that the organization sees them as invaluable partners in its success) then the donor will give or give again.

The second to the last editorial (link above) details why the reduction in the charitable deduction, once the the pennies are added up, actually winds up being negligible at worst if not altogether insignificant.  I would posit, in fact, that given what Congress and the President are facing in having to develop real viable solutions to our national economic woes, nonprofits came out of the cuts to its sector's portion of the federal budget pretty much unscathed.

Is our sector just knee-jerk reacting?  Is it not thinking through what mathematically the cuts actually wind up meaning for our sector before reacting?  Is the sky supposedly falling when actually, it's pretty stable, especially given what could have been?  I know... you may respond to me, 'there have been studies that found that the Pease Amendment will reduce charitable giving in 2013 by X or Y'.  There have also been studies that have found that it will not reduce giving during 2013 and may actually increase it (see the final editorial link, above).

Bottom line?  We simply don't know what is coming for our sector's fundraising in 2013 but then again, we never do.  There's never been a year where a crystal ball clearly outlined for nonprofits what to expect and what to plan for in their organizations' budgets or fundraising planning.  So, frankly, we're right where we usually are if not actually a bit more informed (Congress proposed to the President the inclusion of the Pease Amendment just as the new year was rung in).  That's more 'warning' related to federal fiscal cuts and how it specifically will (or further) effect nonprofit organizations' budgeting and planning than most years.

If abiding how much can be deducted from individual federal taxes for charitable contributions is too much for the American nonprofit sector, then what are we willing to contribute in order to compromise and participate in creating a viable solution for our nation to survive this economic downturn?  Were we never going to have to give an inch?  Why would we assume this?  If we don't believe our sector needs to, like other recipients of the federal budget, accept some cuts - how then is our sector participating in developing solutions to national economic issues?  If we don't believe we should have to because we are a charitable sector I would ask whether we are American or not.  Of course we are.  Compromise is the only way any solutions are determined and if we are not willing to compromise then what are we doing in the business of charity?

Updates: news stories pertinent to this issue, in order of date published:

Charitable tax deduction facing scrutiny in Congress

Tax Status and Fees Still in Active Play Between Nonprofits and Localities

Journalist Calls for Death To Tax Exemptions for Universities

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