Why The Charitable Deduction Matters
No doubt you’ve heard that many nonprofit leaders are concerned about the proposals to limit or eliminate the charitable deduction. As President of The Philadelphia Foundation – the community foundation that last year made $16.5 million in grants to 1,061 Southeastern Pennsylvania nonprofits from almost 900 funds established by individuals and families – allow me to add my emphatic voice to that chorus by elaborating my concerns about the impact of such changes on the entire nonprofit sector.
The charitable deduction is a voluntary individual activity with vast societal benefits.
No one has to give. A charitable deduction rewards taxpayers by providing them an annual mechanism to “vote with their pocketbooks” for those causes that resonate most with them. It supports a vast array of nonprofits doing great work. Most significantly, it directly benefits the recipients of nonprofit services: orchestra concert-goers, homeless persons, visitors to wildlife refuges or veterans seeking job training, to name but a few.
Changing the charitable deduction could have a negative domino effect on the regional economy.
Nonprofits are themselves economic engines – paying employees, purchasing goods and services. Southeastern Pennsylvania nonprofits have more than 242,000 employees who earn $11 billion in wages – making them the third largest employer in the region. In 2007, 5,300 Southeastern nonprofits contributed $36 billion in total revenues – placing them between Sunoco Inc. ($44.7 billion in revenue) and Comcast Corp. ($30.9 billion). However, many of these nonprofits operate on very slim financial margins. Reduction of even a small amount of funding could force them to vastly curtail their services or even close their doors. This is particularly true of those that serve the most needy. These less flashy nonprofits cannot offer naming rights or the kind of patron benefits that typically attract high-profile, high-net-worth contributors. They rely on the donors who rely on the charitable deduction.
The charitable deduction lets each community respond to its own needs.
Most nonprofits are developed locally. Their effectiveness is based on their close connection to those they serve. The charitable deduction serves as a powerful incentive for the local supporters they depend upon.
Capping deductions likely would hurt middle-income and lower-income individuals the most.
If a cap is instituted, middle class taxpayers with limited charitable dollars to spend likely will first select such large deductions as mortgage interest, medical expenses, and state and local tax. That could leave the donor without tax-incentivized dollars to support local nonprofits. In turn, nonprofits -- particularly those that serve lower-income individuals – could face a significant funding gap.
Like a coupon or reward points, the charitable deduction provides taxpayers with a deadline for action.
Nonprofits should have the same ability to encourage spending that merchants and hoteliers provide through programs with expiration dates.
The deduction actually saves the government money.
Nonprofits provide a whole array of social services that allow the government to function more cost-effectively. They reduce the drain on government services and remove the taxpayer’s burden to pay for those services. Consider what would happen if those safety nets were to evaporate.
In short, I urge the federal government to continue to support philanthropy by keeping the charitable deduction intact. We are all the true beneficiaries of the largesse of those who give. While we as individuals may be fortunate enough to not need direct service from homeless shelters, food banks and services for the disabled, we all benefit as a community from the nonprofits that ensure such basic human needs are met.