By Ari Pinkus
’Tis the season for giving. But come the new year, giving to charity may become a bit more taxing for some people. As Congress considers new limits to the once-untouchable charitable tax deduction, NAIS’s Government Relations Team, member independent schools, and others in the exempt community are stepping up efforts to make sure that much-needed dollars keep flowing to schools.
NAIS notes how many schools have been ramping up their email campaigns, encouraging constituents to take advantage of end-of-the-year giving. I just received one from my alma mater, George School (Pennsylvania), the other day with the opening line: “Time is running out to receive 2012 tax benefits for your charitable contributions.”
For its part, NAIS participated in the Charitable Giving Coalition’s “Protect Giving - D.C. Days” this month on Capitol Hill to lobby legislators about the importance of preserving the contribution deduction in its entirety. NAIS joined with nonprofits ranging from the Red Cross to museum groups to religious organizations in this effort.
Any change in the deduction threatens to quite literally cap a long-standing American tradition to give – and give generously – a practice from which independent schools have benefited greatly. It’s estimated that Americans donate $300 billion to nonprofits every year, and more than $1 billion is contributed to NAIS independent schools through annual giving.
Those who itemize deductions on their tax returns, typically higher-income earners, would be affected by capping the charitable deduction. According to a National Economic Council report, households with incomes over $200,000 contributed $42 billion to educational institutions in 2005, the most recent data available. Another study predicts a 20 percent drop in giving from the largest donors, with nonprofits perhaps losing $34 billion.
Capping or eliminating the charitable contribution deduction would likely take a chunk out of the operating budgets of independent schools, and undermine the work that schools are doing for their students, notes the NAIS government relations staff. Studies estimate that any limit to the charitable deduction would cost the exempt community between $2 billion and $10 billion in contributions.
No one knows how things will shake out by January 1, 2013, when the tax cuts enacted under George W. Bush’s administration are set to expire. All this uncertainty may cause donors to pull back on donating because no change in the charitable deduction will happen in a vacuum. It may be accompanied by an increase in tax rates and the return of the full Social Security payroll tax withholding. When people are worried that they will have less money in their pockets and at the end of the month, they may be less inclined to give, says the NAIS team.
The psychological effect is palpable in other ways, too, both for development offices and donors, they add. When schools can put a note at the bottom of a solicitation that a donation is tax-deductible, they find that it helps donors feel more generous.
While negotiations continue on Capitol Hill to reach a deal on a budget and avert the fiscal cliff, only one specific proposal on curbing the charitable deduction has surfaced so far: President Obama has proposed capping charitable-giving deductions at 28 percent, below the present cap of 35 percent for households earning more than $250,000 a year. (During the 2012 campaign, Republican presidential candidate Mitt Romney proposed capping the total dollar amount a household could deduct at $25,000 to $50,000 a year.)
Late last week, Independent Sector, a group representing many nonprofits and that organized the recent lobbying effort, came out in support of the president’s proposal.
With so much in flux, it is a good time for schools to assess the overall financial landscape and consider the implications of the charitable tax deduction on their own financial sustainability, including having a contingency plan if a portion of their operating budget was to be cut in half and developing a long-range plan to generate additional revenue.
NAIS member schools can keep up with the latest developments by signing up for the Independent School Advocate e-newsletter.