Finally, a tax debate that’s fun to watch.
Most of the time, most of us in community-based organizations believe that the wealthy in our society — whether individuals or corporations — don’t pay their share in taxes. The recent revelations have been stunning but we had already guessed that neither corporations nor the wealthy pay much in taxes.
We know better than to argue this case to foundations or to most donors: after all foundations are based on wealth and are typically founded (and controlled) by wealthy people. However, the Obama administration’s proposal to cap the charitable tax deduction for households with more than $250,000 per year in income has made it harder to avoid the issue: Should the charitable tax deduction — which overwhelmingly benefits the wealthy — be raised or lowered? In other words, should you cut taxes to the wealthy (against the Obama proposal) or keep them the same (support the Obama proposal)?
Foundations — even the progressive ones — have long lined up on the side of “the more that donations are tax-deductible, the better.” For example, in the debate over how much can be deducted when giving appreciated art to museums, foundations have consistently argued against any limits to tax deductions. It’s been disappointing, though, to see the big guys in the nonprofit sector who purport to speak for all of us — like Independent Sector — come out against limiting deductibility.
We like the fact that progressive activist Kim Klein has dared to call for the charitable deduction to be abolished altogether, a point of view shared by Republican former Senator Pete Domenici. Kim argues that eliminating the deduction would only be a “scratch” to giving, and challenges “us who work in and for nonprofits to think through what we believe . . . whether we should be able to save on our taxes while patting ourselves on the back for being charitable, or whether giving should be its own reward.” (Domenici, who chaired the Senate Finance Committee when the Bush tax cuts were passed, recently commented, “Nobody would have thought that all these things would have happened after you cut taxes … that you’d have two wars and not pay for them. That you’d have another recession.”)
And let’s remember that most taxpayers, especially those with lower incomes, do not itemize deductions on their tax returns. If you are not claiming deductions above, for instance, $11,400 for a couple, you don’t need to itemize.
A foundation program officer recently said to me, “We shouldn’t support anything that reduces giving to the nonprofit sector.” Applied to tax policy, this could mean that no one should pay taxes at all.
We in community nonprofits like to think we’re on the same side of most issues, but on this one it’s a little fun to see so many people squirming uncomfortably. Ask your co-workers, co-volunteers, and board members what they think about this, and how much their own giving is affected by the tax deduction. It could be the most values-centered discussion you have all year.
* More than 88 people have commented on last issue’s First Person Nonprofit article by a founder who was fired by the board. Next issue we’ll hear from some board members who have participated in firing a founder.
* In this issue, arts hero John Killacky tells about his regrets as an arts funder. We also discuss nonprofit board myths, hear from Ask Rita on drunk employees, and, just in time for the 4th of July, a 3-minute vacation with Morgan Freeman. What a mix.
Have good week. — Jan Masaoka