The current economic crisis has caused individuals to reevaluate how to spend their money, and reassess what organizations, if any, they can continue to support. Recently President Obama has presented a controversial idea of a tax adjustment that essentially transforms public donations into private government reserves for healthcare. According to
Obama's Organizing for America campaign site, the President expressed three goals for changes in healthcare during his presidency: first, provide affordable and accessible healthcare for all Americans; second, lower health care costs; and third, promote public health. While
Obama's hopes to help the poor by providing government-regulated health care is commendable, his plan to pay for it may not only cause those same people harm, but it will also cripple the organizations that are currently helping citizens in need. Should such legislation be approved charities will face even larger drops in donations which will correspondingly worsen the already feeble structure of charitable institutions. Although President Obama's plan to itemize tax deductions for charitable giving is intended to help gradually save money and expand healthcare to American's in need of coverage, his proposal is an immediate threat to charities because it increases the price of donating and makes it even more difficult for donors to give in a time when charities need the most assistance.
The President's 2010 budget blueprint is designed to
reduce tax-deductions among individual donors who make more than $200,000 and married couples that earn $250,000 or more annually from the current rate of 35% down to approximately 28%. To best illustrate Obama's proposal
consider Martin Feldstein's example in his article titled A Deduction From Charity in The Washington Post. Suppose a high-income individual donates $10,000 to a charity with a 35% deductible rate, the deduction would decrease his or her taxable income by $3,500. Now imagine that the deductible rate is lowered 7%, meaning that a donor pays 7% more in taxes, the individual now will only save $2,800 from the charitable gift. The change would reduce charities receipts by a dollar for every dollar of extra revenue that the government collects, and in effect it will tax schools, hospitals, medical research budgets and arts organizations. Therefore the proposal will impact both social services and donor's wallets greatly. While no one makes a charitable contribution solely for the tax deduction, the fact remains that deductibility of donations reduce the cost of giving and thereby enable individuals to give more generously. Thus Obama's proposed tax transformation acts as a disincentive and deterrent for individuals to give to charitable foundations. In a
recent press conference when asked about the matter,
President Obama (pictured right at a conference in the White House) stated that such a tax change is "fair" because it only affects the top 5% of household and it creates an equal deduct for all income brackets. In fact, those individuals in higher income tax brackets are paying up to 15% more in taxes (39% marginal tax rate at the highest level) than those in lower tax brackets. Yet Obama explains in his speech in Washington that scaling back the tax deduction for the wealthiest Americans is "not going to cripple them; they'll still be well-to-do. And ultimately, if we're going to tackle the serious problems that we've got, then in some cases those who are more fortunate are going to have to pay a little bit more." Additionally, some will argue that higher income households will give more dollars per capita than those at lower income brackets. Therefore if the Obama administration wants to make sure that low-income donors enjoy the same tax benefits they should raise the deduct amount for charities contributions to the higher rates if they truly believe that non-profits are providing valuable services to society. Ultimately, under the new tax codes both the people and the charities that are taxed. Those who give at higher rates will also have less control over how their earnings are spent which essentially enables the government to determine how people should spend their money.
While Obama feels that if people are giving for altruistic reasons that the tax deductibility rate should not affect donations, he is naïve to think that some people would not welcome an added tax bonus for charitable giving to offset their income. AFP President and CEO Paulette V. Maehara explains in a news release, "It is incorrect to suggest that incentives do not play a role in charitable giving," she adds that, "While people decide to give for any number of reasons, incentives are a critical factor in determining how much someone gives, especially as gifts get larger." Sadly regardless of people's reasons for giving, in tough economic times like today charities will be handicapped with 7% reduction in revenue with incomes falling the effects would be compounded and crippling for some charities. Supporters of the tax change, such as the Tax Policy Center, argue that the
net impact to giving will only be 1.3%, assuming this figure equates to $7 billion dollars a year. Although the President says the change will affect a mere percentage of fundraising the amount is still substantial and will cause individuals at higher income rates to reduce their charitable contributions to maintain their current standard of living. The full impact of the tax change will go into effect in 2011 giving some time for the economy to recover. The $7 billion dollars per year charity tax is part of the Obama administration's goal to create a $634 billion dollar health care reserve fund over ten years to reform and support the current Medicare system and move the country a step towards universal healthcare (the model below illustrates Obama's healthcare saving system.) Half of the money for the fund will come through health care spending efficiencies by the government and the other half will come from tax increases on charitable giving and mortgage deductions among higher income households.
By issuing this proposal, the Obama administration is creating a rift between the government and the non-profit world. While now is the time that charities and the government should be partnering to provide social services, this movement is causing anger and negativity to brew among philanthropic organizations. The impending tax change has created a stir in the news this past week, causing reporters and economic analysts to question the destructive potential of such a severe change. For exa
mple
CNN documented the impact the tax proposal is having by examining how it is affecting the Direct Relief International Warehouse in central California, an institution that provides medical supplies to the needy around the United States and around the world in response to natural disasters. This organization relies heavily on donors and will be hurt by the Obama budget proposal restricting charitable donation tax write offs. Many organizations in the nonprofit world say they were blind sighted by the proposal and fear it will hurt contribution levels at a time when they have seen donations drop to their lowest point in the past decade and demand for help go up. Furthermore Ken Berger, the President and CEO of the website Charity Navigator, reports a shocking statistic that " For many charities 80% or more of their individual contributions come from the wealthy," he postulates that "A reduction in such giving could have horrific consequences." The tax increase is being referred to as a "sin tax" by Robert Sharpe, a consultant on charitable giving, and Forbes columnists Daniel Indiviglio says Obama is "
short-changing charities." Both Republicans and Democrats alike feel that the tax proposal
defies logic and will make an already bad situation worse for charities that are currently suffering as a result of the desperate state of the economy.
This issue ultimately questions what the size and the scope of the government should be in the matters of an individual's spending. If the movement becomes a law the government will essentially generate a surplus of $7 billion a year towards Obama's "
health care piggy bank." By reducing tax deductibles less money funds the organization of a person's choice, and more money goes straight to the governments hands- an event that the Wall Street Journal has affectionately dubbed "
For the Rich, Government is the New Charity." While government intervention may oftentimes be helpful in other social and political causes, when it comes to issues in philanthropy it is common knowledge that the organization itself is more efficient in allocating resources and actively engaging with those in need more then the government. However, is Obama's proposal passes the funding priorities will shift from the private sector to the public sector and ultimately encourage fewer donations to charity in favor of higher taxes to support government programs. Thus private citizens will have less control over where their money goes and how it is spent thereby enabling government bureaucrats to take America's tax dollars and decide how to spend other citizens hard earned money however they see fit. This sends a powerful and presumptuous message- the government knows best and will decide what to do on behalf of every American- which is a dangerous notion for fundraisers that are in dire need for privatized giving to survive through these difficult times.
acting to current fundraising events. For example a survey conducted by the Alliance for Children and Families and the United Neighborhood Centers of America released information describing how some states are delaying payments to nonprofits. The tardiness of payments for 19 states have negatively impacted cash flow, which has lead to job cuts and reductions in services, causing organizations to be reliant on lines of credit to make up for cash shortfalls. Moreover the study shows which states are struggling more then others and in what way. Late payments in Michigan, for instance, paired with decline in donations and an increase in demand for services have created an ideal climate for nonprofits branch out and create new grants and funding strategies to survive. Contrastingly Wisconsin has been having problems with the Medicare resulting from the computer systems and poor software implementation that has moved citizens to instate new legislation and create nonprofit organizations to help develop a more efficient record keeping system.
uncil of Nonprofits believes a new generation of informed and active youth will emerge and thereby create a more sustainable and educated America. Moreover the site explains that volunteering for college students is a double reward, first, students gain the experience and knowledge of running a service by helping an organization, and then it benefits them later as they have more edge in the work force and will provide more vitality in a career which can potentially produce brilliant and socially sensitive minds that can change America. Especially concerning the Recovery and Reinvestment Act, the youth of the nation is encouraged to participate so as to benefit the country now and themselves later.
