The tax breakdance

The issue of tax deductions for charitable donations has caused a stir in the US Jewish community, adding to an already stormy election season.

Money 370 (photo credit: Thinkstock)
Money 370
(photo credit: Thinkstock)
In this year’s hotly contested and competitive US elections, Israel is not the only issue polarizing American Jews. But unlike the subject of Israel, another battleground has remained bipartisan and generally under the radar. It is the controversial issue of ending tax deductions for charitable donations, and it could impact the fundamental way Jewish organizations are funded in the US.
Poll after poll indicates that Israel is not a top determinant of how American Jews will vote. However, the economy and the national debt are of utmost concern to voters, Jewish and non-Jewish, this election season. Most Americans agree the $16 trillion national debt must be reduced. The question is how.
Democrats believe taxes on the wealthiest must be increased; Republicans believe taxes should be reduced. Both state that expenditures must be cut, but there’s wide disagreement on how.
Some economists suggest revenue could be increased by closing loopholes or tax breaks, but the two major deductions that could have a significant impact on the national debt are mortgage deductions and deductions on charitable giving.
It’s highly unlikely that, with the American dream based on home ownership, mortgage deductions would be ended. But if most Jewish organizations have any say, neither will Congress disallow deductions on charitable giving.
“When policy makers are trying to figure out how to balance the books, they look at the big ticket items and charitable tax deductions have a lot of zeros next to them,” William Daroff, director of the Washington office of the Jewish Federations of North America (JFNA), tells The Jerusalem Report.
“During the last four years, there have been five different proposals to reduce the deductibility of charitable donations and we have led the fight to stop each of these efforts. There is incredibly massive bipartisan support for maintaining the charitable tax deduction. But proposals keep rising up as various policy makers look for more revenue.
I’m very confident that the tax deduction will continue, but I could be wrong, due to the fiscal crisis we are in,” he asserts.
The JFNA, the umbrella group for the 157 Jewish Federations in the US, is not alone in its fight to retain the tax deduction. In a letter to Congress dated February, JFNA and the Jewish Council for Public Affairs (JCPA), as well as nearly two dozen other Jewish organizations, argued that “any reform of the tax code should not reduce the charitable tax deduction and other giving incentives so that America’s charities can continue to provide critical social services at this time of profound and increasing need.” The letter spells out how various Jewish charities “provide billions of dollars of vital services… Further pressures on non-profits would lead to a decrease in important services on which millions of Americans rely.”
But not all Jewish charitable organizations agree with the Federation-led fight against reducing the tax deduction on charitable giving.
The National Council of Jewish Women (NCJW), for instance, has declined to cosign letters to Congress, arguing against any change in the charitable tax deduction.
Sammie Moshenberg, director of Washington operations for the NCJW, says her group feels strongly that something must be done about the sky-high deficit as well as continued government support for social need programs. “We will push for [raising] taxes as part of that mix. So for us to push for a tax cut that benefits us as a charitable organization, it would be hypocritical. This is our main issue.”
Another Jewish community official, who did not want to be identified, says the fight against eliminating the charitable tax deductions by many major Jewish organizations is “incredibly shortsighted and foolish.” He believes the last letter to Congress, complaining about this issue, “as if this is the most important thing in the budget, is wrong on policy and wrong on politics. In the political world, Jews look absurd, putting their small parochial concerns ahead of the country’s health. It’s like a person being only worried about their own paycheck.”
But the question is to what extent Jewish charities would be impacted if donors could not receive a tax deduction for their contributions.
“I don’t think our contributors would be impacted,” says NCJW’s Moshenberg. “I don’t think most of our contributors give for tax deductions.”
Daroff argues, however, that the charitable tax deduction is a “key ingredient in the decisions individuals make for their contributions. This is especially relevant to the higher net-worth donors. If you give $180,000 or more, it does have an impact.”
Ami Nahshon, international president of The Abraham Fund Initiatives, says he’s not sure how much charitable giving is influenced by the tax deductions, “but there’s no question it’s a factor. Perhaps large donors are more impacted. And it is the type of charitable giving that is impacted. Charitable bequests are significantly influenced by estate tax policies. There are proposals to eliminate estate tax deductions as well.” But for the average donor, Nahshon says, the tax deduction is “a sweetener, not a determinant.”
In 2009, in response to President Barack Obama’s tax proposal that included a limit on deductions for charitable giving that could be enjoyed by America’s wealthiest, the Center on Philanthropy at Indiana University suggested that charitable contributions from Americans with incomes of $250,000 or more would drop by 4.6 percent. If all Americans who claim charitable deductions on their tax forms are included, however, the Center puts the decline at just 2.1 percent.
Based on this analysis, Jewish Federations might be severely impacted. According to Daroff, 90 percent of Federation funds come from 10 percent of its donors. “It would have a negative impact on us. And for the government to say ‘we don’t have the money to care for those in need, but we expect others to take care of them.’ It’s a double whammy. And it’s a third whammy due to the recession. The amount of private philanthropy is declining while the demand for services is growing.”
Daroff points out that the proposals to change the tax policy come not only from the Obama Administration. “Fiscal conservatives are looking at flattening the tax codes and they have talked about ending these tax deductions,” he says.
The Republican Party platform explicitly rules out ending tax breaks for charitable contributions. But Republican presidential nominee Mitt Romney has campaigned on a promise to cut tax rates, while saying he would make up the lost revenue by eliminating some of the $1.3 trillion in deductions that are allowed in the tax code. He has not explained which tax breaks he would end, but he has ruled out raising taxes on capital gains and dividend income. On the other hand, before he was chosen by Romney, his vice presidential running mate, Rep. Paul Ryan, proposed a plan that would eliminate tax deductions on charitable contributions.
Although Nahshon says he believes “everyone in the philanthropic world” is concerned about how politicians might change the tax code to reduce the deficit, “my sense is that it’s not likely to happen. The tradition of tax-incentive philanthropy is so rooted in American society. Changes would be difficult to sell.”
After the election, when Congress must finally face the ballooning deficit, rising payroll taxes and huge domestic and military-spending cuts, all Jewish organizations are expected to weigh in with their priorities. “Some organizations will support Obama’s budget and some will oppose it,” says a Jewish professional. “For the Jewish community to be only talking about this tiny part of a trillion-dollar budget, however, looks absurd.”