Non-profits fear Obama plan to lower charitable deductions

‘Recipe for disaster,’ a fundraiser predicts

By Yaffi Spodek

Issue of March 20, 2009 / 24 Adar 5769

President Obama’s budget proposal to limit charitable tax deductions for the country’s highest earners will have an adverse impact on Jewish not-for-profits and charity organizations, according to experts in the field.

“I think it will be an absolute disaster,” predicted Robert Katz, executive vice president of the American Friends of Migdal Ohr, a charity dedicated to helping underprivileged children in Israel.

“The reality of the Jewish philanthropic world is that 10 or 20 percent of the people give 80 percent of the money,” Katz told The Jewish Star. “When you have that equation and impose these kinds of tax restrictions, it’s a recipe for disaster, especially in these more difficult times. As charitable as people may be and as goodhearted as I know they are, there is definitely a tax benefit component to their giving.”

The budget would cap tax itemized deductions at 28 percent, down from the current rate of 35 percent, for those earning at least $250,000 a year. People in that bracket would be saving 28 cents instead of 35 cents on every dollar. In addition, the tax rate for the highest income bracket — $208,850 and over — would be raised to 39.6 percent, up from 36 percent.

Obama has said the change in itemized deductions would raise $318 billion over 10 years, which would help pay for a 10-year, $630 billion reserve fund designed to help make health care more affordable and available, according to a report last month in The Chronicle of Philanthropy.

But many fundraisers in the Jewish community do not believe that the proposal will be beneficial. “What it means is that we will get less contributions from donors, and the government, which is already under tremendous constraints for funding, will not be able to handle the additional requests,” said Norman Gildin, chief development officer for OHEL Children’s Home and Family Services. “Additional needs will arise and the government won’t be able to make it up.”

“I’m sure the president thinks there are positives, but right now I can’t agree with him,” said Katz.

Obama has said he hopes the economy will be in a recovery by the time these proposals would be implemented in 2011. Even if that is the case, fundraisers anticipate that the changes would still have a negative effect on charitable giving.

“Regardless of whether we are in an economic recovery or not, you’re still giving the same disincentive to sponsors, benefactors, patrons, donors and philanthropists,” warned Gildin. “You’re targeting that particular group that gives the most contributions, and if it will impact on their tax deductions, it is inevitable that those contributions will decrease.”

In addition to the impact on Jewish philanthropy in general, the budget proposals could have a tangible effect in the Five Towns. “Since many taxpayers in our community have household incomes which would be taxed at the highest rate, our community would be disproportionately affected ... and then in turn impact the charities in our area,” said Avi Hirsch, an accountant who lives in Woodmere and works for a not-for-profit foundation in Teaneck, N.J.

Hirsch pointed out that Nassau County is ranked 10th in the nation in median household income, according to the 2008 report of the U.S. Census Bureau. The county’s unemployment rate, however, has increased dramatically in the past few months — from 5.6 percent to 6.5 percent from December to January, compared with New York City’s negligible increase from 7.2 to 7.3 percent during the same time period.

“We may not feel the impact of unemployment rates currently, because many of our community members who lost jobs have severance pay and generous compensations,” Hirsch cautioned. “These benefits won’t run out for six months, and so the effects are still unfolding.”

He estimated that the community wouldn’t feel the impact until perhaps the end of the summer. “People in the community have seen their portfolios decline so drastically over the last 12 to 18 months and they’re giving less as it is,” Hirsch said. “The local organizations, which are already facing increased demands for emergency and social services due to the general economic downturn, are going to be facing a much deeper threat because of these two proposals.”

Those who have held on to their jobs, as well as businesses, will see their charity deductions limited, which, coupled with the climbing unemployment rate, will challenge Jewish organizations to meet their budgets next year, Hirsch predicted. “We live in a very generous community, and the president’s proposal will not decrease people’s desire to give, but will certainly leave us with less to give,” he said.

Obama raised $300 million over the Internet for his presidential campaign, most of it in contributions of $20 to $50, but that is not how funds are raised in the Jewish community, said Katz, noting that both larger and smaller charities would be affected.

“Anyone who’s giving really big money fits into the higher income bracket,” he explained. “The fact is that we rely on those who are significantly blessed with finances to succeed and keep the charitable work going. If the proposal passes, my guess is that it could result in a 5 to 10 percent cut in addition to everything else we’ve been putting up with. These people have huge hearts, but they also have needs, and they can only be hit with so much.”

And not only Jewish organizations will be affected by the proposal, OHEL’s Gildin pointed out. “I think it’s a problem for all charities, Jewish and non-Jewish,” he said. “Everybody will get hit with the same policy, a policy that is not an incentive for people to give in an economy where people are already not giving.”

The loss to charitable organizations nationwide could total several billion dollars a year, according to the Indiana University Center on Philanthropy.

The center examined how the proposed budget would have affected giving in past years, based on data on how much taxpayers deducted for charitable contributions. If Obama’s tax plan had been in effect in 2006, Americans with incomes of $250,000 or more would have decreased their giving by 4.6 percent, or nearly $3.9 billion according to the center. People at that income level claimed more than $81 billion in charitable gifts in 2006.

“If you have these new limits, this could spell a disaster for American charities,” said Gildin. “Billions of dollars that people would not give makes a dent in an already difficult situation.”

Not only would the wealthiest Americans be affected, he added, but so would the many people who benefit from the services provided by charities, which would be forced to cut back significantly on their services.

“Let’s not forget those who depend on these charities,” Gildin said. “Our ability to provide services that are essential in the community could be curtailed, compromised, or closed down. It would have drastic consequences for many groups and an exponentially negative impact throughout the United States. The timing of this could not be worse.”