Business

Nonprofits concerned about deficit-cutting plans

One of the proposals the now-disbanded congressional Joint Select Committee on Deficit Reduction reviewed was a cap on tax deductions for charitable contributions by high-income earners, causing local charities to worry about a possible drop in donations.

The proposal — centered around capping itemized deductions at 28 percent for individuals in the highest two tax rates — could have meant a huge reduction in large-scale giving, executive director David Foote of the United Way of Kitsap County said.

Though the so-called “Super Committee” disbanded Monday after a bipartisan deficit reduction deal failed to materialize, cuts to itemized deductions still remain on the table in the months ahead.

“If congress puts a cap on what people deduct, it would affect every nonprofit in Kitsap County and around the country,” Foote said.

The proposal to reduce deduction limits for charitable donations from 35 percent of a taxpayer’s adjusted gross income to 28 percent is still very much up in the air. As congress looks for ways to decrease the deficit, a cap on deductions is a real possibility, according to a report in the NonProfit Times, a business publication for nonprofit management.

And if a proposal does go through, Foote and others foresee dire times ahead.

“I have one Kitsap County donor who donates in excess of $10,000 every year,” Foote said. “You think he will still donate if he can’t deduct that from his taxes?”

The 36 United Way agencies in Kitsap County get much of their annual fundraising from large donations, Foote said. Ninety-eight percent of the donations come from county residents.

Foote has seen overall annual donations for Kitsap County United Way agencies dip from around $1.9 million a year to $1.5 million in the tough economy.

United Way, which lends help to a wide range of charitable causes — everything from vulnerable youth to food services — relies heavily on wealthy donors. Foote cringes to think what a cap could do the amount of donations the organization receives.

“Some people will still donate,” Foote said. “But a lot of people will think, ‘If we can’t get a tax break, then why should we do it.’”

Capital campaigns would suffer the most, said Maj. James Baker of the Salvation Army’s regional office in Bremerton. Though most donations to the Salvation Army are for $100 or less, the nonprofit does receive big donations when working on capital campaigns.

The Salvation Army is currently trying to raise $3.5 million to remodel the Bremerton offices, including facilities that offer showers and laundry for the homeless. Baker can’t imagine how the Salvation Army would ever raise enough money to build the new facilities if the proposal to limit tax deductions on charitable donations passed.

“For our big capital campaigns, we go out looking for donors of about $100,000,” said Baker. “The cap would be disastrous for big donations.”

A report published by the Center on Budget and Policy Priorities in 2009 reported that a proposal to cap deductions would curtail total charitable donations only by an estimated 1.9 percent.

But in tough times, any cut to donations hurts the needy, said Jennifer Hardison, executive director of South Kitsap Helpline, which runs a food bank and provides other services.

“We don’t have federal or state funding,” Hardison said. “Since we are supported 70 percent by individuals, a cut to donations is definitely disturbing.”

In times like these, individuals need the extra incentive to donate what they have, she said. If cuts go through, she couldn’t imagine anything other than a detrimental outcome that hurts nonprofits; in turn hurting the needy.

“This could be very bad for us,” she said.

 

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