Proposal to Balance the Federal Budget on the Backs of Charities…

The co-chairs of President Obama’s deficit commission released a proposal this past Wednesday that threatens to limit tax breaks for charitable donations. According to the a recent article in the Chronicle of Philanthropy (, the committee co-chairs feel that limiting the tax breaks on charitable donations is a possible way to curtail the nation’s budget deficit.

According to the article, “They said one option was to set a floor of 2 percent of adjusted gross income. In other words, taxpayers could not get deductions for any dollars spent on charity below that level.

“They proposed another option that does not explicitly mention the charitable deduction but could affect it as well. That proposal calls for an end to all tax breaks in exchange for slashing tax rates to a range of 8 percent to 23 percent (compared with today’s range of 10 percent to 35 percent).  If Congress wanted to add back any of the breaks, it would have to pay for them by raising the tax rates.”

What could this mean for charities who rely heavily on donors who give less than $1,000 annually?

Here’s an example: Joe Public is a mid-level donor (gives between $500-$5000 annually) who annually gives to his favorite charity for the personal satisfaction of giving back to his community. The fact that there is a tax deduction is a great bonus, and he enjoys the concept of perhaps seeing a break (albeit small) on his returns. But if the year has been tight, and he knows that the donation will not be a deductible expense, the scales tip toward him not giving. The charity loses out on Joe’s donation.

According to another Chronicle of Philanthropy article ( in May of this year entitled, “Charities Seek to Strengthen Ties to Donors Who Give Modest Sums,” explored the benefits of the mid-level donor to the bottom line of several charities. “A well-thought-out approach to middle donors can have a significant effect on a charity’s bottom line.” The article sites this example, “At Catholic Relief Services, an international aid organization in Baltimore, the charity’s 4,500 middle donors—people who have given at least three gifts of $1,000 each over the previous two years—account for only 1 percent of all annual-giving contributors. But in 2009, their gifts represented a quarter of the money donated by people who make annual gifts.”

Bottom line: A proposal like this could be catastrophic to many charities and tax-exempt organizations.

The full commission’s recommendations are due on December 1. Congress may then choose to act on some or all of its recommendations.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits,1812 W Burbank Blvd, #7445, Burbank, CA 91506

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