The fical year 2013 White House budget specifies that the federal tax deduction for charitable contributions be reduced to a maximum of 28% for married couples with income over $250,000, and single individuals with incomes over $200,000. If approved, this proposal would reduce charitable contributions to non-profit organizations. It represents a covert attack against America's nonprofits.
How important to most people is this? Non-profit organizations paid approximately 9% of the wages and salaries in the U.S. in 2009, according to the National Center for Charitable Statistics. The sector's $1.41 trillion in revenue in 2009 was approximately 10% of U.S. GDP.
Do charities need donations from upper income people? According to the Urban Institute's 2011 Nonprofit Almanac, about 30% of public charities' revenue came from the government, either in the form of grants or fees for services. In contrast, public charities (the largest, registered organizations) received only 13.6% of their income from charitable contributions, but donations are the flexible funding that charities receive, providing better wages and salaries. Private funding frequently keeps the doors open for many different groups.
Lacking active volunteer involvement and donations from the community, charities cannot depend on substituting funds or help from the government. Many non-profits have grown dependent on government funding, including hospitals, after-school programs, health clinics, museums, advocacy organizations, and traditional aid organizations like Hull House in Chicago, which recently closed leaving behind $3 million in current debt and $11.3 million in pension liabilities.
Hull House was plagued by poor management, inability to successfully use government funding, and an uninvolved board. The settlement house founded by Jane Addams had grown so dependent on government money that it expected its board members to contribute only $5,000, and raise $5,000 in additional funds each year, token sums for an organization of its budget size and community reputation. Many board members failed even in this modest duty and most completely failed to intervene when years of mismanagement brought the organization down.
Hull House could be the "model" of an Obama administration charity. A weak, ineffective inner-city organization "serving" 40,000 Chicago residents that was dependent on inadequate government funds and completely unable to raise the money it needed to survive.
Reducing the incentive for wealthier Americans to contribute to charity will create more charities like Hull House. Government funding is seldom sufficient to pay adequate salaries, whether they be for after-school tutors, social workers, public health nurses, or any other job that President Obama has encouraged young people to select. Private foundations have already recognized the problem represented by the administration's bad charitable policy along with many more decades of general poor management and treatment of nonprofits by the government, and are trying to fund innovative projects. The government nor Obama nor a private benefactor will write a $2 million check like the one Hull House board members hoped for, a check which which never came.
The Obama administration says that reducing the incentive for upper-income taxpayers to give to charity will reduce the deficit by $586 billion over 10 years. It is the ultimate irony that most charities and many young people working in the nonprofit sector continue to support the President and consider him a "benefactor," when the administration's policies have already harmed their organizations, and will continue to do so until stopped.
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