And Now for Something Different on the Charitable Tax Deduction . . . editor notes issue #83

Reading the nonprofit press or the barrage of nonprofit email these days, one gets the sense that of course -- of course! -- the key issue right now is preserving the current level of tax deduction that individuals get by donating to us. Petitions and letter-writing campaigns urge us to contact our Congressional reps with this message.

Can we at least acknowledge the irony that our main collective policy message appears to be: "Preserve Tax Deductions for the Wealthiest Americans who Itemize"?

Can we consider more integrated approaches to take?

While we must fight to keep the charitable deduction, we must also call for revenue solutions that can prevent cuts to the safety net. We must argue not only against cuts but for a fairer tax structure that begins with allowing the Bush-era tax cuts to expire.

Our nonprofit community stands not just for charity, but for fairness, for a healthy planet, for tax policies that support the common good, for values. In fact, the nonprofit sector is where Americans come to express their values. Let's be sure that our policy messages express our values, not just our revenue streams.

* Query for a future American Nonprofits webinar: seeking a couple of nonprofit CFOs on experiences with choosing and instituting retirement plans for nonprofits; email stevez at spectrumnonprofit dot com.

* This issue we hear from an executive director about following a founder, from the Ask Rita in HR attorneys about background checks, from comic writer Vu Le about nonprofit meetings, and about "conflicts of loyalty" (rather than conflicts of interest) on boards. And of course, a 3-Minute Vacation.* And have a great holiday season. -- Jan Masaoka and the Blue Avocado staff and Steering Committee

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I love what you do. I am supposed to be a subscriber, but I am not receiving your emails. I would appreciate your checking to see what happened. It's possible you may have my name attached to a formal email address? Thank you so much for your help with this.

Thank you, Latifah! We'll fix our database. Thank you for bringing this to our attention.

I am the fairly-recently-appointed ED of our small non-profit and find the blue avocado incredibly rich resource material. From time to time I send or print material to circulate to our Board. Thanks for your work!

I am inspired by fierce women warriors of our sector. Two whose voices consistently fire me up: Jan Masaoka and Ruth McCambridge.

Great issue, Jan.  I’ve agree that conflict of “loyalty” is a far better way to describe duality of interests.

I’m often a contrarian, I don’t disagree with what you are saying, I keep wondering what really happens if the tax deduction goes away? I don’t think that donors give because of the tax deduction, it’s a factor for some sure, but would the sky fall? I doubt it. I’d ask any nonprofit leader (ED, DD), isn’t your relationship with your donors more than you being tax deductible? Seriously? If the answer is “no”, it’s time to reconsider your mission. It’s different, but take the home mortgage deduction, is that why you buy a home? Yes, it might afford you a nicer home, buy home ownership levels are the same in the US and Canada, and no tax break up north. To me the discussion should be about your business model if you think your nonprofit would “fall off the cliff” without being deductible.

Very good point, thank you for the re-focusing.

Finally! An alternative take and deeper analysis of the tax deduction debate. Thank you! Tina Cincotti, Funding Change

Since we seem to be generalizing about consequences, ponder this: Pick a percentage of a decrease in giving, and ask who would pick up the slack? Government entities? Hardly, given that they are financially strapped, and are the least efficient at administation and oversight. Private citizens? To some extent, but given the economy! Volunteers? Maybe more than now, but it still takes money to pay a lean staff, rent ,utilities, insurance, etc. What could we end up with, chaos on the streets of those in need For those who do not know the origin of the deduction for donations, it goes back to the time of onerous tax rates (read 70+%). As a way to mitigate the hit, the government allowed a tax deduction for donations to charitable organizations. The biggest elephant in the government room is spending. There also need to be some revenue increase, but unfortunately, most politicians never met a dollar they didn't like! You could add up all of the proposed revenue raising suggestions now being proposed, and it would still be drop in the bucket, compared to what could be achieved by a critical look at ALL expenditures. What we need is to grow the economy, and you can't tax your way into it. Spain and Greece increased taxes in an economy that was already under water, and now the unemployment is 25%+, and there are protests and riots in the streets. Washington, DC needs to take heed.

Here, Here! As much as I like this newsletter, sometimes I can't abide the liberal bent. I just couldn't get pas the "safety net" comment without retching. It's more of a "lifetime support net" that is ever-expanding by invitation from the U.S. Federal Government. Those evil wealthy Americans are already paying the lion's share of income and other taxes in this country, while at least half of all Americans pay none at all and Jan calls that fair???? How about encouraging people to get back to work?! Spending is the real problem for people like Anonymous and me but, what the heck, those production-oriented wealthy people work hard enough for all of us, don't they? It boggles my mind that our fair president expects those evil wealthy people to pay for those in the lifetime support net and encourages those same people in the net that they need to hate the people that are keeping the net in tact. Ever hear of the expression, "don't poop where you eat?", Jan?

Thanks for sticking with us even though you can't stand the "liberal bent," Anonymous! and thanks for weighing in . . . it's the disagreements that make the comments the most valuable. Jan

BRAVO Anonymous for your ideas. Not all non-profit leadership in the arts are liberals.

You did not wash your mouth after the Tea Party, did you?

Hooray for your brave and refreshing perspective!

This is the first time I've seen our nonprofit media present a more holistic approach to the tax deduction discussion. Thank you for taking the long view. Cynthia Gregory Clinic Ole Foundation

As someone who gives over 10% of our family income each year to non-profits, and as a household that pays more than its "fair" share of taxes at the 50% marginal rate (federal, 10% CA state income, SSI, Medicare, property taxes, CA sales tax of 10%, etc.), I can tell you that we will be donating less next year if they eliminate the charitable contribution deduction. Why? Because unlike the federal government we have to balance our household budget. And if the government raises our taxes and also eliminates the charitable deduction, there's less money left in the pot for you non-profits. Sorry, but that's the reality.

I think that you have fallen into the trap of "only wealthy people itemize". Most of those with a mortgage especially in areas with higher state/county taxes can benefit (and do) from itemization*. As someone who does not even make the median income for the metro DC area, I can say that my donating will go down if the tax deduction is eliminated. I am often hit up for donations left and right all year long for many organizations that would not see my money otherwise. I will only continue to donate to the few I chose and I often do not included those on my taxes as they are given, be it time, money or resources from the hearth. I am not the only person in this situation. I work for a small nonprofit (not they type that can accept donations) and I know a lot of people in my salary range who are in the same boat. Most people I know will be far more assertive in terms of "saying NO when hit up for donations.

*Of course they are looking at taking those away as well. Sorry but $60,000 a year is not wealthy.

You're right and I stand corrected about who itemizes. Although 70% of people do NOT itemize, I appreciate your pointing out that in the 30% that do itemize there is a wide range of wealth and income.

And I agree that donations will go down if the charitable deduction cap is lowered.

Just to remind us that lowering the cap on charitable deductions will affect people who a) itemize and b) want to give more than 30% of their taxable income away and get a deduction for it. Not always, but often -- only wealthier people can afford to give more than 30% of their taxable income away.

Thanks for writing. Jan


The area in which I live is very costly — housing, transportation, & other expenses. I can think of several places where, if I lived there and had the same income, I'd be considered quite rich. These discrepancies are not discussed in tax talks.

I am on a non-profit board, a small non-profit; we pay some salaries and hire in work we cannot do. We buy supplies that help keep others at work.

We add to the economy in several ways. We provide free services. As we carry on our services, the government benefits by taxes our employees pay, and governmental agencies aren't required to provide money cover what we do.

We we get down to the nitty gritty of taxes, the whole tax code needs a restart (20 years ago), and neither party is willing to get with it.

Thank you for suggesting that this tax deduction is worth reconsidering in light of the billions in revenue lost for the federal government! While non-rich folks certainly take this deduction, if one reviews the impact on one's taxes versus the billions of dollars in lost revenue to the federal government from individuals who are avoiding millions in taxes, it becomes a much more complicated topic--one at least worthy of debate in the charitable world where it has seem verboten for some time.

Thanks very much!

Actually, I'm not suggesting that we reconsider this tax deduction.

I am suggesting that we consider other aspects of tax policy beyond the charitable deduction. For instance, we nonprofits should consider ideas such as a floor (rather than a cap) for itemized deductions, charitable deductions as related to estate taxes, taxes on donor-advised funds that are the same as taxes on private foundations, and more. I'm disappointed that we have limited the tax topics on which we weigh in.

Thanks for writing, Anonymous . . . Jan

I fricking love you!

Thank you for talking honestly about the tax deduction stuff! Really. You and Kim Klein are the only ones willing to say the emperor is naked!

This is a thoughtful piece. It helps frame the issue. Unfortunately, though, you’ve fallen into more than one trap. I continue to be unable to understand why our sector thinks that the beneficiaries of the charitable deduction are the donors who take it on their income tax return. Have we as a sector lost sight of what we do or of why we do it? This is exactly the trap that people who want to damage our work would like us to fall into. The unique thing about the charitable deduction is that it is the only tax expenditure where the beneficiary is NOT the taxpayer (wealthy or otherwise). The beneficiaries of the charitable deduction (and the gifts it helps generate) are the children who don’t go home hungry because their town has a successful food bank supported by private philanthropy. It’s the elderly lady next door who can remain independent in her home because donors supported a visiting nurse agency. It’s the young mother who can go to the local library with her kids and help them discover the world because philanthropists understood how important access to information is. How have we as a sector fallen into the trap of believing that we’re preserving the deduction for “people who itemize” instead of those we serve? The charitable deduction may encourage charitable giving, but it decidedly does NOT benefit the taxpayer financially. It just means that they don’t pay tax on the money they give away. The only way they can benefit themselves is to not give the money away. The charitable deduction is arguably the only logical tax expenditure in the code. If anyone ought to understand its importance, it would be those of us who read Blue Avocado. Thanks for your contribution to the debate.

Kevin Murphy
Berks County Community Foundation
Reading PA

My thoughts exactly Kevin...and was already 'composing' a reply while scrolling comments until I came upon yours, which exposed 'the trap' quite well. This is a time to rally around the logic and ultimate social benefit of the deduction, not to 'fall on the sword' only to see pols spend that revenue in their famously incompetent ways.

I am a middle class American and I donate to non-profits every year, number one my personal civic duty and secondly, it helps with my taxes each year and again I am middle class America. It is frightening to me the class warfare all of this is establishing. I personally believe an across the board percentage should be established for all classes.

For our small non-profit organization, the charitable deduction problem isn't the issue. As the Government (state and federal) continues to overtax us, average families who utilize our services will not have any disposable dollars left to support the arts. When families are trying to juggle paying for basic living expense and ever-increasing taxes, they will have no money left to support any non-profit organization with donations or participation fees. If our Government cannot control their overspending, then it WILL trickle down to put non-profits out of business. Unfortunately, this might be happening for many non-profits in 2013.

Your editorial exemplifies the nauseating class warfare of the current Administration, invoking "fairness" and "wealth". Is "fair" that half the filers pay no income tax at all? That the top 20% pay 80% of income tax? You confuse socialism ("from each according to their means"), the problem with which, as Margaret Thatcher famously observed is that is always runs out of other people's money, with fairness.

You are also confused about the source of charitable giving. The charitable deduction argument is not about the wealthiest Americans, who can afford to give regardless of deductibility, but about the rest of us, who contribute more as a percentage of income than the wealthy.

You should also be careful about what you wish for in terms of revenue solutions: The government is borrowing one of every three dollars it spends, and that is unsustainable. Allowing the tax cuts to expire (to which I am not opposed) would raise about 10% of the needed revenue. The problem in a nutshell, is that the US has European-style entitlements at an overall tax rate less half that of Europe. Simply put, either spending must be curtailed or revenue increased astronomically. The missing 90% of revenue will have to come from the middle-class and poor. Shouldn't we perhaps consider letting them decide what to do with their money.

Please unsubscribe me.

70% of American households contribute to nonprofits; only one-third of American taxpayers itemize. A majority of donors get no tax benefit from their giving, and yet they continue to give. When you poll donors on why they give, the tax benefits are way down the list.

Last year US nonprofits received almost $300 billion in private philanthropy. The best data I have seen projects a decline of $3 to $6 billion if the charitable deduction is removed, which is a 1-2% decrease -- hardly worth the level of panic we are seeing in the nonprofit sector. Why can't we accept the hit and say, "We are willing to do our part" -- especially if it helps to preserve important government services and functions.

The larger issue is the demonization of government and the culture of tax avoidance. Wasn't it Oliver Wendell Holmes who said, "Taxes are the cost of living in a civilized society?" As nonprofits, we need to talk more about what taxes buy us: not only a safety net, but roads, bridges, courts, public safety, schools, public airwaves, parks, regulations that protect food, water, air, workers, drivers, other species, etc. etc. Government is not "them," it is us -- it's how we express our common values and create shared rules and expectations. Our lives are enriched by these things, so it's OK to pay for them with our tax dollars. If we care about the common good, we need to carry this message proactively.

Amen! to your perspective on tax deductions and the safety net. Love your newsletter. Thanks, Jean

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