Amid the swirl of special interests with huge stakes in the "fiscal cliff" negotiations, only one can be easily identified by the halo that glows above it: the nonprofit sector. Charities, foundations and universities have a simple goal: to protect the tax deduction for charitable donations against various proposals, on both sides of the aisle, to reduce the break for wealthy taxpayers. These groups have as much right as any other to fight for their self interest. But we shouldn't let their good reputations prevent us from seeing them for what they are: a lobby with high-paid and highly-effective lobbyists, and without a halo.
This is hardly the nonprofit lobby's first go-round. At the start of his first term, President Obama's leading proposal to raise revenue to pay for expanded health coverage and other priorities was a limit on the itemized deductions that wealthy taxpayers could claim for charitable giving, mortgage interest and the like. As it stands, taxpayers in the top bracket get a 35 percent break (soon to revert to 39.6 percent if the Bush tax cuts expire) for charitable giving, far more than taxpayers in lower brackets; Obama's proposal would have narrowed the gap by bringing the break down to 28 percent. So, if a billionaire gives $100,000 to George Washington University, he'll reduce his tax bill by $28,000, rather than $35,000 under current law. The proposal would have raised $318 billion over the decade, and Obama argued, with some heat, that it would have done little to discourage charitable giving if (research on this question is mixed). "If it's really a charitable contribution, I'm assuming [the size of the tax break] shouldn't be the determining factor as to whether you're giving that $100 to the homeless shelter down the street," he said.
But the proposal was snuffed out almost instantly on Capitol Hill, thanks in large part to the swift action of the nonprofit lobby. It may not seem like the most powerful lobby, but it has a unique advantage: Virtually every congressman has a college or major charity in his or her district -- some have dozens -- and so they're all bound to get calls from home. Meanwhile, these sectors also have their well-paid representatives in the capital. To name just one example, Terry Hartle, the well-regarded veteran lobbyist for the American Council on Education, the main higher ed association in Washington, earns more than $400,000 per year. "We certainly registered our concern," Hartle told me when I asked him in 2010 about the defeat of the tax deduction proposal. "But . . . we were just a small part of any number of organizations that registered their concerns."
Now, however, the dynamic has shifted so that the nonprofit lobby is arguably allied to Obama in his dispute with the GOP. While the president is still in favor of shrinking the charitable deduction for wealthy donors, his favored route for raising revenue is to simply let rates for the top two brackets return to where they were before the Bush tax cuts. It's the Republicans who prefer to raise revenue through "closing loopholes and deductions" -- possibly by capping the total sum of deductions that taxpayers can claim, at, say, $25,000, a different approach than Obama's longstanding proposal. You would think that the nonprofit lobby would be pushing hard with Obama for the higher rates, both on regular income and capital gains. The more wealthy taxpayers owe, the more they'll presumably be inclined to give away, regardless of how big the charitable break is.
But this new dynamic does not seem to have made the nonprofit lobby an ally of the White House, perhaps because the charities and universities realize that to get to its revenue target, the White House will eventually need to reduce deductions in addition to raising the top rates. The New York Times had this intriguing tidbit in a recent report on the fiscal cliff negotiations:
Meanwhile, cracks emerged in the pressure campaign the White House is trying to assemble. A coalition of philanthropies refused publicly on Friday to join White House-organized efforts to raise the heat on Republicans in a show of moxie that portends poorly for any effort next year to tackle one of the largest tax benefits for the rich, the charitable deduction. The coalition, the Alliance for Charitable Reform, said in a statement that it “refuses to go along with the White House’s request for charities to insert themselves into the debate over tax rates.”
“Our priority is to preserve and protect the charitable deduction,” it said. “Throughout his first term, President Obama has proposed reducing itemized deductions, including the charitable deduction, in multiple budgets and other spending proposals, and never voiced concern over the impact of his plan on the charitable sector.”
Of all the nonprofits, it's the colleges and universities that have the most at stake -- as Justin Pope of the Associated Press recently explained, the higher ed sector relies on the wealthiest donors more than other social service organizations and religious charities for its $30 billion annual harvest of contributions. Pope reports a foreboding warning from Steven Bloom, another lobbyist at the American Council on Education, that "if colleges raise less from private donations, they might have to raise more from tuition." No mention by Bloom, of course, of the other dire options that might have to be entertained, such as, say, reversing the ever-rising tide of administrative pay that, as the Chronicle of Higher Education reported just this week, now has three dozen college presidents making more than $1 million (led by none other than Bob Kerrey, who pulled down more than $3 million in his last year at The New School.)
If that salary report did not help the pro-charitable deduction lobby in Washington, neither do all the reports in the papers these days about wealthy taxpayers rushing to take advantage of the deduction before the end of the calendar year when, who knows, it may shrink somewhat. Tax advisers are promoting "donor-advised funds," which allow taxpayers to set aside money for charity now, and claim the full deduction for it at 2012 rates, without having to actually decide yet where they want the money to go. They are also promoting a gambit that allows taxpayers to donate stocks and claim their appreciated value as a deduction, while not having to pay any capital gains on the gains they are getting the deduction for. The chief popularizer of this approach? None other than another halo-wearer: Warren Buffett. Warms the heart, doesn't it?
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