As arguments over what to do with and about the US economy and the federal deficit continue to shed more heat than light, President Obama sought to take the fight back to the Republicans with the ‘American Jobs Act’ announced last week. The act contains a mix of tax realignments likely to gain some Republican votes and stimulus spending pretty much guaranteed to lose those same votes.
Perhaps the most talked-about realignment pertains to the ‘Buffett Rule‘, a popularly-coined term reflecting Warren Buffett’s dismay at paying less income tax than does his secretary. It would rearrange the tax code to shrink loopholes for wealthy individuals and corporations, while rearranging the tax base for those with low-paying jobs.
One loophole the president wants to reduce concerns the deductions of taxes made by the wealthy to charitable organizations – a reduction many charities and nonprofits do not want to see.
An irony in the president’s proposal is that he is getting pushback from a sector of the electorate that tends to be left-of-center. Those in numerous nonprofits and charities are working toward broader coverage of healthcare and/or environmental protections and/or educational opportunities for the less fortunate, etc. Nevertheless, they see in the president’s proposal a likely choking off of larger donations.
As of today, a wealthy donor could get a $.35 tax break on every dollar donated, whereas a worker making $40,o00 would only get a $.25 break. The president’s plan would bring down the break on the wealthy. It certainly would bring more money to the treasury – at least at first glance.
But nonprofits and charities pressed the administration to abandon a similar effort in 2009, and already are challenging this one as well. The thrust of their argument pertains not to the need to reduce the federal deficit, but to the economic pressures the reduced tax break will put on charities and nonprofits. As their largest donors do not see the same tax benefit in making larger donations, and thus do not make those large donations, jobs at nonprofits will be lost to make up the difference.
“Limiting the itemized deduction would certainly lead to a significant decrease in charitable contributions. If charities have less resources, they’ll be forced to choose between laying off employees or cutting needed services,” said William C. Daroff, vice president for Public Policy at the Jewish Federations of North America. “Nonprofits employ almost 10 percent of the work force nationwide, and in many states nonprofits are the largest employers. In our view, cutting the deduction is like cutting your nose to spite your face.” (quote from The Chronicle of Philanthropy)
Economic tensions usually move in asynchronous networks of serendipity and planning. President Obama needs the support of many nonprofits and charities as they tend to support government’s efforts in healthcare, the environment, and education. But he also needs to draw political support from independents and fiscal conservatives by trying to bring the deficit back toward the black. The question he might be asking over the next 14 months is whether calling for higher taxes on the wealthy actually curtails not only support from the wealthy, but also from the nonprofit universe that benefits from some of that wealth and much of the community-organizer ethos that President Obama has tried to cloak himself in.