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Debt Deal is Existential Threat to Nonprofits

August 2, 2011 Posted by The Law Firm for Non-Profits, P.C. in Advocacy, Congressional ax, Lobbying
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The debt limit legislation just signed into law presents an existential threat to hundreds of thousands of nonprofits, along with the millions of Americans they employ and the tens of millions who increasingly rely on their services. The nonprofit sector must coalesce now to defend against these likely threats cuts and to protect the tens of millions of Americans who rely on its services.

While the details currently are sketchy, there will be an immediate reduction in nearly half-a-trillion dollars in domestic spending, including funds flowing to nonprofits to pay for services to the needy. More cuts will be included in the Gang of Twelve’s recommendations forthcoming before the end of the year.

A greater unknown is the revenue enhancement plan the Gang of Twelve will also propose. If it is anything like the Simpson-Bowles plan and the budget cap plan supported by the White House, the new plan would eliminate the current charitable deduction and replace it with a 12% tax credit only available for amounts donated above 2% of the donor’s adjusted gross income.

If as a result Americans start to give less to charity, the impact on 501(c)(3) organizations – and the people who rely on them – could be devastating. Perhaps lost to the Obama administration and others who support the proposal is the irony that the charitable sector is expected to fill in the gap and social services that will be created by the other budget cuts that are almost certainly forthcoming. The proposal is a double whammy for America’s poor, needy and disadvantaged. The services they receive that are funded by the government will be slashed and the number of nonprofit agencies left to pickup the slack – and the resources they have to serve the needy – will be dramatically reduced.

The impact of these cuts may be even greater on nonprofits than on the economy as a whole. Nonprofits represent about 10% of the nation’s workers, employing 14.5 million Americans. In the last couple of years, jobs in the nonprofit sector have been growing at a higher rate than in almost every other industry. On average, about 20% of nonprofit revenues come from donations. Nonprofits have been counting on that portion to increase to make for the decrease in government support. And while this is the average, many nonprofits rely on donations for a majority of their support. If the Simpson-Bowles plan is adopted by the Gang of Twelve, the reduction in the charitable deduction could result in the loss of up to 3 million jobs.

To prevent this catastrophe, nonprofits must flex their muscle. Their collective voice should – and must – be louder and stronger than any other group in the country. As a whole, we must let Congress know that additional cuts in nonprofits funding, whether grants or fees for service, will result in massive job loss and leave the increasingly desperate and needy population that now has no choice but to turn to nonprofits bereft of services. The nonprofit sector must make its voice – and those of the 14.5 million people it employs and the tens of millions of Americans they serve – be heard.