“It’s hard to overstate the crisis facing charitable giving today. So let me just say it as plainly as I can: Much of current philanthropic giving, by foundations and individuals, neither meets the needs of our charitable organizations nor addresses some of our most urgent public needs.”
-Pablo Eisenberg, Wall Street Journal, November 9, 2009
“Eighty percent of the charities surveyed last month said they had lost financial support, compared with 52 percent in 2008.”
-Chronicle of Philanthropy, December 10, 2009
Charitable giving in America has fallen on hard times. And the prospect for 2010 does not look any better. Based on the Dunham+Company annual New Year’s Philanthropy survey conducted in January of this year, Americans say they are loosening their purse strings on entertainment and other household expenses but not on charitable giving.
When it comes to charitable giving, 37% of respondents indicate they continue to reduce their charitable donations and 23% say they have eliminated donations altogether – statistically the same rates as last year.
Yet in spite of the crisis facing charitable giving, the Obama Administration steams ahead at full speed endangering even more charitable institutions through the proposed tax increases unveiled in its 2010 budget along with deduction decreases on charitable giving.
The Obama budget resurrects the proposals from last year to raise taxes on single households making $200,000 or more and couples making $250,000 or more. This is compounded by the Obama administration proposing to decrease the charitable deduction for these same households, limiting the deduction to 28 percent. That would be a perfect storm for undermining the charitable sector … and the certain demise of some charities.
It is argued that these households only make up 2.8% of all households but, according to the Center on Philanthropy, they contribute 43.5% of all charitable gifts. The Center on Philanthropy goes on to estimate that these moves would decrease charitable giving by about 2.1 percent, which would have meant a decrease of income to charities in 2006 (the last year for which we have data) of almost $3.9 billion. In other words, they would hinder the most generous Americans from doing what they should do – share generously with those in need through a charity that specializes in the service it provides.What is also not acknowledged is the fact that nearly 50 percent of these households are either sub-chapter S corporations or partnerships. Thus these policies will directly impact millions of small businesses.
So another way to look at the impact of these proposals is this: If the Obama plan stays as is, the tax burden of an individual owning a small S corporation with taxable income of $250,000 (including personal income and corporate profit) would jump from 33 percent to 39.6 percent, or $16,500, which is 6.6 percent of the household income and close to the average of what these households now give to charity – $20,500.
It’s clear the Obama administration doesn’t respect the enormous impact these households have on charitable institutions. To the plan’s supporters, this increased level of taxation and reduction in the charitable deduction is only fair since they are in favor of redistribution of wealth … in this case, from successful and generous households and away from charity… to the government.
In a report released late last year by Barclays Wealth (in partnership with Ledbury Research), charitable giving may be in for an even more difficult time than we think. It states,
“Throughout history, private charitable giving has undergone cycles of boom and bust. In each, the stimulus was wealth creation and business innovation by private individuals, both of which were turned towards solving the social problems of the day. …governments regularly intervened to provide much needed support, bringing the donor-led philanthropic age to an end.”
Today, the Obama administration is heading in the same direction. The proposed tax increases undermine wealth creation and business innovation that is desperately needed to spur philanthropy and provide the critical support of charitable institutions. Instead Obama and his administration are intervening through their increased taxation on the households so important to philanthropy and at the same time reducing the incentive to give by capping the charitable deduction at 28 percent.
This should sound an alarm to charities that their future is at risk. Just as when President Roosevelt expanded the role of government which led to a profound negative impact on charitable giving and therefore, charitable institutions, so we are now headed in that same direction should these tax increases and charitable deduction decreases be passed.
At a time when charities are struggling as people continue to pull back in their charitable support these proposals could accelerate the erosion of charitable institutions and their effectiveness just when these institutions are needed more than ever.
Many charities are in the fight for their lives. With Obama’s help some will face an early death.