Independent Sector Says Obama Deduction Plan Presents "Solomon's Choice"

March 27, 2009

Independent Sector Says Obama Deduction Plan Presents "Solomon's Choice"

Independent Sector, a coalition of charities and foundations, has issued a statement saying that President Obama’s proposal to limit some charitable deductions to help finance a plan to reshape the country’s health-care system presents a “Solomon’s choice” for the charitable world.

In wording that reflects an internal debate over how to respond to the president’s plan, the group says that the proposed limits on income-tax breaks for wealthy people would reduce charitable gifts “that are needed more than ever in these difficult economic times.”

At the same time, it says, charities are suffering from the rising cost of providing health insurance to their employees and, if they work in the human-services field, of offering care to people who do not have health coverage.

President Obama has proposed limiting tax breaks for itemized deductions, including donations to charity, to 28 percent for married couples earning more than $250,000 (individuals $200,000), starting in 2011. The tax revenue raised would be used to help finance a plan to cut health-care costs and extend care to people who are now uninsured.

Diana Aviv, Independent Sector’s president, has said her group’s members are divided over whether to fight the president’s plan because it would dampen giving or support it as a way to improve health care.

The statement, in essence, presents a brief for both arguments. “While there are many reasons Americans choose to make charitable contributions, research has shown that changes in tax benefits do have an impact on when and how much an individual or family contributes to charitable organizations,” it says.

Internal Revenue Service statistics show that in 2006, 49 million Americans who itemized their tax deductions accounted for $196.8-billion in charitable contributions — 88 percent of the total giving by living individuals that year, it adds.

“In the end, the proposed policy change, combined with the current economic crisis, would diminish the flow of dollars to many charitable organizations, leaving many of our most vulnerable populations on the losing end.”

On the other side, it says that in 2005 (the latest year for which data is available) nonprofit groups paid more than $48-billion for employee health-care coverage and related benefits, excluding pension contributions or payroll taxes — or more than 4.6 percent of their total expenditures.

“Since then, the cost of health-care coverage has skyrocketed and nonprofits now face difficult decisions about whether to cut benefits for employees and risk losing qualified staff, or cut staff positions, both of which would diminish the programs they provide to communities,” it says.

The statement concludes by asking lawmakers to both “move forward on the health-care challenges facing our nation” and “preserve these and other strong incentives to encourage Americans to give back to their communities,” especially those of “substantial means.”

“We are living in extraordinary times, and we believe it is important to work closely with the administration and the Congress to find workable solutions to the Solomon’s choices that lie ahead,” it says.

— Suzanne Perry

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