Obama’s tax policies hurt nonprofits

While America’s and metro Atlanta’s nonprofits are not facing the dire circumstances staring many of our country’s large manufacturers and major financial institutions in the face — scenarios that include bankruptcy and nationalization — neither do these vital community resources benefit from the “too-big-to-fail” mentality that has prompted the federal government to commit billions of taxpayer dollars to shore up failing institutions such as Citigroup and AIG.

In fact, America’s nonprofits are facing lean times that are likely to be made worse, not better, as a result of policies being championed by the Obama administration.

Those in the nonprofit arena expecting a sympathetic ear in the new administration — after all, these are agencies helping precisely those seemingly in synch with the new president — were sadly disappointed when his spending plan was revealed to Congress. Arguing that tax laws allowing for charitable deductions “unfairly” benefited the wealthy, the president has proposed cutting the percentage of income that can be deducted, and capping the overall size of itemized deductions.

While the administration argues that the full impact of these (and other) tax changes would be softened because they are phased in and would not be felt until 2011, the fact that those in higher income brackets make their tax plans years in advance — including the amount and type of charitable donations — presents real concerns for nonprofits.

Most charitable gifts come from individuals, not corporations. In fact, about 75 percent of the $306 billion donated to charities in 2007 came from individuals. However, the 5 percent of corporate donations impacts nonprofits significantly, largely because they are planned; and corporations already are planning cuts to their 2009 charitable giving.

According to a recent report on corporate philanthropy by The Conference Board, more than 60 percent of corporations surveyed had either already cut their planned donations for 2009 (45 percent) or were now considering doing so (16 percent).

Not only are corporations planning cuts in charitable giving this year, but the administration’s new emphasis on the environment, including “global warming,” apparently is causing at least some corporations to redirect their donations from local focus areas, to nonprofits emphasizing environmental activities rather than social services.

United Way of Metropolitan Atlanta, the most visible player in the region’s corporate giving sector, will announce this month if it reached its ambitious, $82-million goal set last fall. If it does, it will be a tribute to the hard work of the United Way staff and its member agencies, as well as those heading its campaign, led by Deloitte executive Ed Heys.

However, the continuing economic weakness locally and nationally means that corporations, as well as nonprofits that rely for funds on corporate generosity, will face very real, if not debilitating challenges this year. Already, for example, Atlanta’s United Way has cut a dozen staff positions and is leaving other vacancies unfilled.

However, it is perhaps the environment facing the country’s wealthier taxpayers that poses the most serious challenges for nonprofits; and why Obama’s move to reduce incentives for donations by higher-bracket taxpayers is especially troubling.

The danger signs have been there since at least the second half of 2008 when, according to a study by Indiana University, large gifts to nonprofits — that is, $1 million or more — dropped 33 percent. While many taxpayers do not make charitable decisions based solely on tax consequences, they will undoubtedly give less if they face lower tax incentives on top of sharp declines in personal wealth.

In this environment, the Obama administration’s tax increases aimed at higher-income individuals will prove most harmful to those least likely to be able to withstand the brunt of those policies — our nonprofits.

24 comments Add your comment

PappyHappy

March 11th, 2009
9:45 am

Sadly, Mr. Barr is correct. The banks are now finding out that by accepting their ‘handouts’, they sold their souls to the devil!! Some are already attempting to give the money back to the feds for they cannot stay in business with Washington tinkering constantly. Can only imagine how the Obama/Pelosi axis would treat charities, and the rules they would impose. It is apparent that they want total control!

It is time for President Obama to take some advice from folks who thought there would be ‘change’ in the right direction, and that HE WOULD follow through on what he promised that he would do! At present, terribly DISAPPOINTED! He may have to learn that DISAPPOINTMENT affects BOTH PARTIES!

Think he should take the following under advisement:

1) Select cabinet members who are not tax cheats! Such is a reflection on your own values.

2) Stop the new Attorney General from calling the nation ‘cowards’ and fueling divisiveness. Scolding after the fact is not convincing.

3) At least in the beginning, ADHERE to the promises made regarding doing away with EARMARKS and PORK BARREL spending; and keeping lobbyists out of key cabinet positions. REMEMBER — YOU HAVE VETO POWERS!! Now that the FY 2009 Appropriations Bill ($410 Billion) has been approved, you can veto it if you do not want to fund over 8,500 earmarks! (NO MORE EXCUSES!)

4) Cease talking down business, and attempting to make successful enterprises the enemy! You will have to rely on them to pay the bills for your initiatives.

5) Refrain from speaking of the ’stock market’ in a cavalier way since there are millions of Americans who had depended upon the ‘market’ for their retirement through planning their own futures (401k and IRAs). At age 70, one’s options are limited, BUT WE STILL VOTE!

6) Do not use tax payer money to bail out individuals who were not disciplined enough to think through personal financial obligations before committing to same. THIS IS REWARDING RISKY BEHAVIOR — AT OUR EXPENSE! (Many of us learned the hard way as well, and came out the better for it!)

7) Stop blaming the current situation on your predecessor when your own party has had both chambers of Congress for over two years — WHICH YOU WERE A MEMBER — and, Barney Franks and Chris Dodd were in charge of the Congressional Banking Committees. Additionally, you had friends in Freddie Mac and Fannie Mae ( Mr. Raines and Mr. Johnson). This just causes folks who vote for you to question their own judgment as to whether or not they chose a guy NOT UP TO THE TASK!

8) The ‘bipartisanship’ touted during the campaign to be brought to Washington by the Obama Administration is not a ‘one way street’, or a night at the Whitehouse watching a movie or a game. It requires mutual trust, compromise, and demonstrated
credibility .. with true bipartisanship. Beating up on Eric Cantor — or the ‘boogey person’ of the day is not a recommended strategy. Suggest the process begin!

9) Refrain from using the Whitehouse to attempt to silence critics– Jim Cramer, Rush Limbaugh, Rick Santelli and now Eric Cantor. It cheapens the office, and causes one to seriously question your priorities when we are in a serious economic crisis. Refer to item #8. Remember, this is not Chicago politics!

10) Deal more with substance rather than style, including weaning yourself from the teleprompter.

11) If in charge, TAKE CHARGE — that includes engaging the Speaker of the House. SHE IS NOT THE CO-PRESIDENT!

12) Daily pronouncements/speeches (stem cell research and education as examples) without detail plans; impacts on citizens; specific objectives and outcomes — NOT GENERALITIES; and the costs; are really a waste of time, and you will find that your bully pulpit will rapidly become an ordinary soap box — made of cardboard. Please do the homework before calling a crowd and saying ‘nothing’.

13) Bring on a chief of protocol who can keep the Whitehouse and State Department straight, where there will be fewer embarrassments — such as we suffered (and still suffering) the week of March 2d. That was pretty sophomoric.

14) LISTEN TO THE AMERICAN PEOPLE — NOT WHAT YOU WANT TO THINK THEY ARE SAYING, BUT, WHAT THEY ARE SAYING!! MAKE US WANT TO SUPPORT YOUR EFFORTS, NOT — REGRET OUR VOTE OF NOVEMBER 4!!

Credibility of a leader is EARNED — IT IS NOT BESTOWED.

Joey Kellett

March 11th, 2009
10:07 am

Amen Mr. Barr!! I teach at a Private Christian School… my income comes from paying parents and local donations. People justify giving to non-profits because they get some of it back. With the economy hurting already you had less of a reason to give. Mr. Barr continue to keelhaul his version of change. These next four years are going to drag buy. Mr. Barr what are your plans for the Governers Race, any intrest?

ByteMe

March 11th, 2009
10:27 am

Mr. Barr misrepresents what is being proposed and then goes off on a tangent about corporate giving to cover up his mistake.

Here’s what the budget proposal says:

The Administration’s Budget includes a proposal to limit the tax rate at which high-income taxpayers can take itemized deductions to 28 percent— and the initial reserve fund would be funded in part through this provision. This provision would raise $318 billion over 10
years.

The proposal does not cap what can be given; it only proposes capping the tax rate of the deduction. In other words, if you are currently in the 33% tax bracket, the deduction is worth 5% less than it would be now.

You think rich people are that hard-hearted that they would cut back giving just because they won’t be able to deduct 100% of it?? You’re serious, right?

And since when do so-called liberatarians think the tax code should be used to promote social goals?

null

March 11th, 2009
10:32 am

Mr. Barr, you had my vote. I didn’t trust those other 2 idiots. Please don’t give up!! After 8 years of Bush and (God forbid!!) 8 years of Obama, I hope the ignorant American voters will be ready for REAL change. The only change we got this go-round was in skin color. Same idiotic ideas…..same idiotic pandering. It’s time to clean house and send the RNC and DNC where they belong….CHINA!!

Bob

March 11th, 2009
10:52 am

I love Pappy Happy’s response.

SaveOurRepublic

March 11th, 2009
10:59 am

Some good points by Mr.Barr indeed. The tax system is largely un-Constitutional, as the 16th Amendment (income tax) wasn’t properly ratified. While taxpayer (fiat) dollars are “stolen” to prop up the banks (& their fractional reserve banking policies), the non-profits (& middle class) will continue to suffer. The best answer is abolishment of the (private) Fed, IRS & income tax. However, the Globalist pawns on “Crapitol sHill” are totally beholden to the Central Banking Cartel, so these (long needed) actions will sadly never happen. It’s pathetic that (patriot) Congressman Ron Paul couldn’t find any (non co-opt’d) co-sponsors for his Federal Reserve Board Abolition Act (H.R. 833). This speaks volumes for the cowardice of the puppets in DC!

Atlanta Native

March 11th, 2009
11:00 am

I remember when the United Way gave free soccer uniforms to Dunwoody kids years ago and reading about the small percentage of donations that actually benefit anyone. If this has not changed significantly, I feel no pain for the United Way.

T-Pain

March 11th, 2009
11:04 am

Keep it up Bobby, we need you at the liberal AJC!

LawDawg

March 11th, 2009
11:36 am

I could not have stated it any better PappyHappy!

clyde

March 11th, 2009
11:39 am

Mr. Barr should run for President.I’ll bet he could beat Obama.

David S

March 11th, 2009
11:53 am

Hey Bob, As long as you are railing against the horrible proposals of this administration, maybe you could take some time to appologize for your votes while in Washington that aided in the decline of liberty and the economy of this country. Unread Patriot Act ring a bell?

BS Aplenty

March 11th, 2009
11:57 am

“Buyers remorse”, Pappy Happy, is not available as a remedy for your poor selection(s) in the Presidential contest. There’s no three day right of recission available here to correct a choice apparently conceived in Obama’s hype and sermonizing. Sadly, a large number of “independent” voters occasionally delude themselves into thinking that Democratic sloganeering like “Change You Can Believe In” is anything other than “Chains for Your Deceivin’”.

So spare me the theatrics and next time just make the smart vote (Romney).

SaveOurRepublic

March 11th, 2009
12:27 pm

David S @ 11:53 – Good allusion to Barr’s past Neocon leanings (support of the so-called “Patriot” Act). In his defense, he’s recently been working with the ACLU (whom I disagree with on 90% of issues..sans privacy rights protection) to address/remedy the growing Orwellian police state.

http://www.infowars.com

RGB

March 11th, 2009
12:48 pm

“Byte Me” doesn’t understand the concept of things happening “at the margin” in economics. Yes, a 5% decrease in one’s being able to make a deduction will affect their behavior.

As noted economist Jude Wanniski explained: “The concept of marginality is crucial to an understanding of economic behavior. Everyone knows about ‘the straw that broke the camel’s back.’ It is always that ‘last straw’ that causes a change in the situation, the marginal straw, even though it weighs exactly the same as each of the other 10,000. But it is one thing to see that change occurs on the margin and quite another to understand that each straw is equally to blame for the breaking of the camel’s back. Very few people think on the margin, but everyone acts on the margin, which is why it is so hard to see that the electorate, as a whole, understands economics.”

I encourage you to read Wanniski’s writings on the subject of people acting “at the margin”. Here’s the link:

http://polyconomics.com/ssu/ssu-980123.htm

He has a ton of useful writings that explain economic concepts in terms many people can understand.

But, if your only purpose is to condemn, complain, and ridicule, you’ll blow it off and remain in dark ignorance.

Read it.

Brill

March 11th, 2009
12:49 pm

So Pelosi was threatening to shut down the govt. if Obama didn’t sign the Omnibus bill “as-is” ? I think he could have gone a long way to winning people over (people like me) if he had vetoed it and stood up to her. He would have looked like the good guy standing up for his principles. But now he looks weak(er).

SaveOurRepublic

March 11th, 2009
1:21 pm

Good allusion to Barr’s past Neocon leanings (support of the so-called “Patriot” Act). In his defense, he’s recently been working with the ACLU (whom I disagree with on 90% of issues..sans privacy) to address/remedy the growing Orwellian police state.

Ricardo

March 11th, 2009
1:58 pm

Did Mr Barr consider that charitable contributions may be down because of the bad economy, and American families just not having the money to contribute, rather than 50 days of Obama being in office? And, to continue the line, does Mr. Barr know whose policies over the last 8 years caused the bad economy?

ByteMe

March 11th, 2009
2:56 pm

RGB: Of course I understand what you’re saying. It’s how people finally got out of their SUVs when gas hit $4/gal.

However, just because you postulate a particular economic theory doesn’t make it automatically true in all circumstances. See “supply-side economics” (worked great when the top tax rate went from 70% to 39%, but did not work when it got lowered from 39% to 33%).

On the other hand, poll after poll about people and their giving indicates that they do it not because of the tax deduction, but because it makes them feel better. A minor adjustment to the tax code isn’t going to suddenly change that feeling.

Think of it this way: you know how precious home ownership is here, right? And that there’s an argument that has been stated that if you take away the mortgage deduction that home ownership levels would drop and kill the real estate industry and builders? Still with me? Did you know Canada does not have a mortgage interest deduction for their tax code AND their home ownership levels are the same as ours?

Not every social good is driven by a favorable line in the tax code, just the same as not every possible evil in the universe will come if we adjust the tax code to raise more revenue.

RGB

March 11th, 2009
3:54 pm

Byte Me – You write that “not every social good is driven by a favorable line in the tax code…” While true, it ignores the basic point that when you eliminate or reduce the deductability of charitable contributions for people, those individuals by definition have *less money to be able to give*. You cannot give at the same level when you have to hold back additional money to pay higher taxes because the government reduced the deductability of a contribution. Remember too that statists relish making more people dependent on government by reducing the ability of charities to care for their constituents. If you are a statist, then you see nothing wrong with that approach.

I re-read my comments and found nowhere that I wrote that “a particular economic theory applies in all circumstances.” Please don’t put words in my mouth as that is not sanitary.

Regarding your Canada example, you cannot compare one country’s rate of home ownership (or any other thing) to another’s–then explain it by a single variable unless other variables are held constant. Economists use the term ceteris paribus–other things being equal. The deductability of home mortgages may be one variable but there are many others. Home size, home value, other tax rates, and the cost of money are but a few examples. But would you suggest that the U.S. end mortgage deductions–and that in doing so it would have no effect on the economy? Or on mortgage delinquencies? Or personal bankruptcies or foreclosures? Should we do this in our current economic times?

The problem is that politicians and bureaucrats encroach on the private sector. One says we should scale back (on the road to eliminating) charitable deductions. Another person says eliminate mortgage interest deductions. Another wants to save the environment by having a “tax and trade” (or cap and trade) scheme that raises utility rates by “only” 40%. Still another politician wants to reinstate taxes on groceries while another raises taxes on cigarettes, alcohol, and even speeders. Still another wants to raise taxes on capital gains, income, and dividends. Collectively, these ideas take a huge toll on people while separately they may look (to some, at least) harmless. I believe it was Herman Talmadge who famously said “don’t tax you, don’t tax me. Tax that man behind the tree.”

Raising the hurdle rate on either businesses or individuals is dumb in any economic climate but is especially shortsighted at present. Google “tax on yachts backfired” and you’ll be reminded of when politicians were going to raise revenue for the Treasury by taxing yachts purchased by “the rich.” The result was that the yacht industry suffered substantially, many workers lost their jobs, and the Treasury’s take of revenue declined because fewer boats were sold and there were fewer workers around to pay taxes. Plus, these displaced workers consumed social services at a higher rate. And this happened under G.H.W. Bush.

I understand basic economics and I believe Mr. Obama and the Democrats do too. The difference is they love power more than they love liberty and free enterprise while I do not.

Let’s not incrementalize our way to becoming a poorer people.

Brill

March 11th, 2009
4:38 pm

Yea, what RGB said.

ByteMe

March 11th, 2009
5:09 pm

RGB: I don’t have time to debate your entire thesis, but I think these two sentences were key and worthy of a counter-thought:

While true, it ignores the basic point that when you eliminate or reduce the deductability of charitable contributions for people, those individuals by definition have *less money to be able to give*. You cannot give at the same level when you have to hold back additional money to pay higher taxes because the government reduced the deductability of a contribution.

This really doesn’t make as much sense as you’d like it to, because it would only apply to couples making more than $250K taxable income and would only adjust the rate by deduction rate by 5% for those couples. If it was 100% or for people under $250K, your statement makes perfect sense. I can only tell you based on my experiences and the experiences of those around me who are at the same financial level (yes, we do talk about these things) that that 5% doesn’t mean anything once you get to that level of income. That’s not what keeps us giving or not. It’s the unpredictable nature of our own income streams that affects us, not the level of deductibility of our charitable contributions.

Off to pick up kids. Have a great day!

RGB

March 11th, 2009
5:58 pm

BM,

Suffice it to say that you don’t really appreciate the fact that peoples’ action DO occur at the margin.

If you think the deduction limit on charitable contributions will stop at folks making >$250k/yr., you aren’t a student of history. Government doesn’t do a little of anything.

By increasing taxes on these contributions, the government directly says “we want people to make fewer charitable contributions.” Remember the adage about if you want less of something, tax it.

In addition, you don’t appreciate that inflation will force more and more people into that $250k bracket over time. Then what will your response be?

One final question: If people are absolutely not deterred by a 5% difference, what is the precise level at which they are deterred from giving? Is it 80%? Or would 50% do it? Or is it just 20%? Is it the same for everyone (as you suggest it is)? The answer is “no”. It occurs at the margin.

Be safe in picking up your kids. I hope your vehicle meets the upcoming CAFE standards and that you don’t have a carbon footprint on which you will soon be taxed.

ByteMe

March 11th, 2009
9:36 pm

RGB: you’re going for the slippery slope argument, which is demonstrably wrong, since the slope doesn’t always lead in the direction of the worst case scenario.

By taxing food and clothing, you’re also saying the government doesn’t want us to buy that, but we do, so there you go. It’s not always a social agenda with the government, even if it sometimes seems like it is.

What inflation? You see any inflation out there in the past 6 months? Seriously, though: the ranges change regularly, but $250K is still not anywhere close to the current median income for households in the USA, so I’m not really worried about that. AMT will get them first anyway.

As for your final question: yes, that’s an interesting game to play, but just as people were predicted to change their driving habits at $2.50/gal, it turned out that it took until it reached $4/gal before anyone got out of their cars. Sometimes we’re all like the joke about boiling frogs (you put them in cold water and turn on the heat and they don’t notice until it gets really hot). Anyway, 5% isn’t going to be the number that will affect behavior, and I’m guessing that those who want to give will give even if it wasn’t deductible. Some people are just like that.

Relax and enjoy life. Stop worrying so much about taxes. People got rich when the top tax rate was 70%. They just didn’t spend like mad mall zombies then.

E. Lee

March 12th, 2009
1:41 pm

To “Atlanta Native”: Your statement about United Way Atlanta’s ’small percentage of donations that actually benefit anyone’ is incorrect. According to financial reports by United Way of Metroplitan Atlanta — and the independent rating organization, CharityNavigator.org (check it out for yourself)the amount of money that goes to direclty support local programs through United Way is better than 90% — that’s an overhead right at 10%.