Teetering on the Edge: The Looming Fiscal Cliff and What it Means for Nonprofits
The thought of our country helplessly bounding over a Fiscal Cliff has sent lawmakers, lobbyists and everyday Americans into a frenzy about what will be done to prevent financial disaster. If the term “fiscal cliff” has you wondering how the entire country has managed to be precariously perched on a high ledge, here is a quick primer on why the nation is abuzz—and what it means to the nonprofit sector.
The Fiscal Cliff is a term to describe the potential impact of a series of tax raises and spending cuts scheduled to take effect on January 1, 2013. Back in the summer of 2011, lawmakers made a deal to raise the debt ceiling without a concrete fiscal plan to reduce national debt. However, the deal was made on the condition that Congress got more time to come up with a plan, but automatic debt-reduction tactics would kick in should lawmakers fail to do so. Well, Congress has yet to come to an agreement, and the first of the year is looming. While these fiscal changes will reduce the national debt, the scope and magnitude of planned cuts over a short time period is predicted to send the U.S. economy into another recession.
In an attempt to prevent the economic free fall, both Republicans and Democrats have proposed ways to raise revenue. The nonprofit sector in particular has turned attention to President Obama’s proposal to reduce the maximum deduction for charitable contributions from 35 percent to 28 percent for individuals earning more than $200,000. This would generate an estimated $40 billion per year of government revenue according to the Joint Committee on Taxation.
Despite ideals that giving is done regardless of personal gain, the reality is that charitable deductions among the wealthy will almost certainly decrease. The Independent Sector reports that changing the cap on the charitable tax deduction would result in a $7 billion decrease in donations. Annual giving is already $12 billion less today than it was in 2008 at the beginning of the recession. Any drop would negatively impact the nonprofit sector, a significant part of the U.S. economy. Nonprofit organizations generate almost 6 percent of the country’s GDP and employ nearly 10 percent of Americans, who garner $668 billion in wages and benefits.
It is estimated that nonprofits generate $1.1 trillion each year in human services. As government budgets shrink, cities and states are increasingly looking at organizations to fill the gap between the services they can provide and what citizens need. Legislation that causes a drop in charitable giving would be disastrous to the nonprofit sector, and the people and causes that depend on it.
Next week, nonprofit leaders will travel to Washington, DC to show their opposition to the deduction decrease. Not able to head to the Nation’s Capital to voice your opinion? Send a letter to your Congressional representative.
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