Senior Obama administration officials invited nonprofit leaders to the White House this week to enlist them to push for increased taxes on the wealthy, a request that went unheeded as charity officials from across the country spent Wednesday lobbying Congress to preserve the charitable tax deduction during deficit-reduction negotiations.
The White House request put new attention on a rift that has emerged in recent weeks among charity and foundation leaders deciding how best to harness their collective advocacy as Congress and President Obama negotiate steps to avoid going off the so-called fiscal cliff.
The most visible advocacy to date among nonprofit leaders has been focused on protecting charity write-offs donors can take.
But some charity advocates say nonprofits should also be more aggressive in supporting tax increases on the wealthy to head off deep cuts in government spending, the second largest revenue source for nonprofits.
And regardless of where they stand, nonprofit leaders say they find it an especially awkward time to be talking about higher rates for wealthy donors: Many groups are pitching such people to make big gifts before year’s end to get a tax break.
Cap on Deductions
President Obama has declared that there will be no deal to avert the “fiscal cliff” without increases in tax rates.
He wants to raise the highest rate now paid, 35 percent, to 39 percent on the wealthiest taxpayers. Republican House Speaker John Boehner has rejected the concept and wants to produce more money for the Treasury by closing tax loopholes and deductions.
President Obama has also proposed reducing the tax break that wealthy people get for their charitable gifts from 35 percent to 28 percent. Another proposal gaining traction would place an annual limit on all itemized deductions, including the mortgage deduction, at $17,000 to $25,000 per taxpayer.
“The president has been very clear on this: They are looking to increase rates on the wealthiest 2 percent,” said Stacey Stewart, president of United Way USA, who attended the White House meeting. “They were asking us to lend our voice to that.”
Seeking Guarantees on Charitable Deduction
Some nonprofit officials believe that’s precisely where charitable organizations should concentrate their efforts.
“If what they want to do is prevent changes to the charitable tax deduction, one of the fastest ways to assure that is to make sure the government is getting the revenue it needs through a higher tax rate,” said Aaron Dorfman, head of the National Committee for Responsive Philanthropy and one of the nonprofit leaders who attended Tuesday’s White House meeting.
Other nonprofit chief executives who met at the White House included Diana Aviv of Independent Sector, Nancy Brown of the American Heart Association; M. Peter McPherson of the Association of Public and Land-Grant Universities; Larry Snyder of Catholic Charities USA; Vikki Spruill of the Council on Foundations; and David Warren, of the National Association of Independent Colleges and Universities. Michael Brown, co-founder of City Year, also attended, as did representatives of the Association of American Universities, Jewish Federations of North America. Meals on Wheels Association of America, and New York Community Trust.
Ms. Stewart said the group met with Mr. Obama’s chief of staff Jack Lew; Valerie Jarrett, a senior adviser; Gene Sperling, an economic adviser; and Cecilia Muñoz, director of the Domestic Policy Council.
The White House officials said that the charitable deduction is more likely to be altered if the president does not succeed in raising tax rates on the wealthy, according to Ms. Stewart.
Ms. Stewart said charity leaders told White House officials that before they would consider pushing for higher tax rates, “we have to be clear that we’re not in the cross hairs.”
The White House officials, she said, could not guarantee they would remove the charitable deduction from consideration in exchange for lobbying on tax rates. But, she said, “they said they’d be willing to have that conversation.”
Jonathan Greenblatt, director of the White House Office of Social Innovation and Civic Participation, sent an e-mail Wednesday as a followup to everyone who attended the White House meeting. It reinforced the White House's view that "the elimination of the charitable deduction is at real risk if rates aren't raised—because otherwise, the math just doesn't work."
"We encourage you to make your voices heard through op-eds, public statements, and other means," he wrote. "We believe it's important that the broader public understand the potential impact that this situation could have on the nonprofit organizations and the communities you serve."
Not a 'Timely Response’
Some nonprofit leaders are ready to use their clout to press for higher taxes. However, they may not do so in as timely a way as the White House wants.
Mr. Dorfman said Ms. Aviv suggested she would ask her board if it wants to establish a position supporting the higher tax rates when it meets in 10 days.
“That seemed to not make the administration feel like it was a timely response,” Mr. Dorfman said. “I believe one of them said this might be over in 10 days.”
Ms. Aviv noted that Independent Sector's position now says that spending and tax decisions should promote equity and be structured so "those who can most afford to contribute more should be asked to do so."
While "we haven't specifically taken a position on increases on the wealthy," she said, "whether we are more specific is something worth discussing."
Ms. Aviv said she had several requests of her own for White House officials. She wants charity leaders to have a chance to meet directly with President Obama and wants the White House to tell Congress charitable deductions should only be reviewed in the context of a thorough examination of the tax system. She also asked officials to create a White House council that would examine new revenue streams for nonprofits.
"The sense that I got from their side is that they'd be willing to have further discussions," she said.
The White House officials also requested that the nonprofit leaders tell those participating in Wednesday’s lobbying event to advocate for the higher rate, Mr. Dorfman said.
But no such message was relayed during the morning briefing of the coalition members as they prepared to embark on their hundreds of meetings on Capitol Hill.
“I guess they ignored it,” Mr. Dorfman said.
He attempted to convey the message on his organization’s Web site, writing: “I urge the hundreds of nonprofit leaders who have traveled to our nation’s capital for visits with members of Congress today to clearly advocate for higher tax rates on the wealthy in addition to their advocacy in opposition to any changes to the charitable deduction.”
Ms. Stewart said the nonprofit leaders organizing this week’s lobbying drive had already prepared their message to focus on preserving the charitable deduction before the White House meeting.
As Neal Denton, head of government relations for YMCA of the USA, said: “We’re here to protect nonprofits from being pushed over this cliff.”
Concern About the Needy
Father Snyder of Catholic Charities and Ms. Stewart delivered lobbying tips and talking points to nonprofit leaders before they embarked on the daylong marathon of meetings with members of Congress, including leaders such Speaker Boehner and Minority Leader Nancy Pelosi.
“The charitable tax deduction is not some legislative loophole that needs to be closed,” Father Snyder told the group in his speech. “I reject the notion that those most vulnerable among us should feel the biggest impact.”
Local Catholic Charities affiliates raise more than $700-million annually from contributions, and many get more than half of their income from individuals, he said.
Changes in the charitable deduction could reduce contributions from individuals by 2.5 percent, he said, and for his group that would translate into a loss of $6-million for programs “that provide critical services to the more than 10 million struggling individuals and families that come to our doors every day for help and for hope.”
“Who will pick up the slack? No one,” Father Snyder added. “Together let us carry the message that now is not the time to dismantle this vital deduction that supports the crucial and humane work of the nonprofit sector.”
John Lippincott, president of the Council for Advancement and Support of Education, attended Wednesday’s event with about 30 representatives from public and private universities and colleges from across the nation.
He said lawmakers and their aides “seemed generally sympathetic,” adding that what was “most reassuring was that they do understand that the charitable deduction does differ from other deductions.
“There is very little gain associated with any reduction in the charitable deduction, but there is significant pain,” he added.
Impact on Year-End Fundraising
Mr. Denton said none of the members of Congress that he spoke to said they considered limiting the charitable deduction a priority.
“But they all proclaimed that it’s a precarious time, that negotiations are very sketchy,” he said.
Taking a position supportive of President Obama’s call for higher tax rates in such a highly charged partisan environment could be tricky for nonprofits at the same time they’re going to big donors asking for year-end gifts.
“It’s important that we maintain neutrality in some of these political debates,” said Mr. Denton, who did not attend the White House meeting. “It’s also going to be very tough for any nonprofit to turn to our larger donors that we’re asking for year-end gifts from and also suggest to them that they should increase what their tax burden is.”
But simply arguing to protect the deduction without offering any alternative solution could reflect poorly on nonprofits, said Mr. Dorfman.
“Having no alternative, that leaves open other bad or worse solutions, and it makes our sector look like it’s just another special interest lobbying to keep this privileged tax treatment,” he said.