The White House’s sessions with the leaders of charitable groups reflect a broader strategy to marshal support from a variety of outside interest groups for raising marginal tax rates for high-earning Americans. Obama has called for allowing George W. Bush-era tax cuts on the wealthy to expire at the end of the year, while Republicans have said that new tax revenue should be raised by closing loopholes and deductions. The administration’s aim is to apply pressure on House Republicans to accept Obama’s tax-rate plan.
Obama aides this week also signaled a willingness to overhaul corporate taxes as an enticement for the chief executives of major U.S. companies to speak out in favor of raising individual income taxes, and a number of prominent executives have begun backing the tax plan in recent days.
The efforts to press charities have been bumpy. Although many nonprofit leaders agree with Obama’s view on top-end tax rates, they have been disappointed that the president seems unwilling to drop his plan for limiting the charitable deduction.
The frustration stems in part from what some nonprofit leaders describe as a philosophical disagreement between Obama and the nonprofit sector. The president has framed the tax deduction as a benefit for the wealthy, they say, while in their view, the deduction is a benefit for charities, which use the money to help the needy.
Stacey Stewart, president of the United Way, cited a “disconnect” between the White House and charities. Stewart said she and others listened to the White House argument but were not willing to waver in their opposition to an “assault” on the charitable deduction.
White House officials have warned publicly and privately that Republicans would “eliminate” the charitable deduction altogether by placing caps on total deductions and rejecting higher tax rates, which represent an alternative source of revenue. Obama made this argument during an interview on Bloomberg Television last week, painting the GOP as the party that would hurt charities.
“There’s been a lot of talk that somehow we can raise $800 billion or $1 trillion worth of revenue just by closing loopholes and deductions, but a lot of your viewers understand that the only way to do that would be if you completely eliminated, for example, charitable deductions,” Obama said. “Well, if you eliminated charitable deductions, that means every hospital and university and not-for-profit agency across the country would suddenly find themselves on the verge of collapse.”
Aides to House Speaker John A. Boehner (R-Ohio) dispute the White House’s characterization. They say House GOP leaders have signaled their desire to negotiate with Obama on all deductions, including the one on charitable giving.
“There are more than enough loopholes and tax shelters for the wealthy that can be pared back without going any further than the president’s own proposal to limit charitable deductions,” said Boehner spokesman Brendan Buck.
When the president initially proposed reducing the charitable deduction in 2009, originally to help pay for his health-care overhaul initiative, he said there was “very little evidence” that the change would significantly affect giving. Speaking at a news conference, he said the deduction “shouldn’t be a determining factor as to whether you’re giving that $100 to the homeless shelter down the street.”
His proposal helped trigger the lobbying campaign to preserve the current deduction. The effort has involved an array of nonprofits representing artists and musicians to museums, universities and religious groups. Some of the best-known nonprofits— including the YMCA of Greater New York, the Boy Scouts of America and the Philanthropy Roundtable — have hired D.C. lobbying firms.
The charities characterize the lobbying expenses as a sound investment given the money at stake: Americans donated nearly $300 billion to charity last year. The groups say they had to act because lowering the deduction would reduce giving, primarily by the wealthy donors who make the bulk of contributions. With their finances squeezed by the economy and state budget cuts, charities say this would force them to cut funding for services such as aid to the poor and artistic programs.
“You don’t need to be a Nobel economist to figure out that if you lost the deduction, people would have less of an incentive to give,” said Kenneth Kies, a prominent Republican corporate tax lobbyist. His firm, the Federal Policy Group, has been paid more than $600,000 since 2009 to lobby on the charitable deduction and other issues by the Council on Foundations, a leading philanthropy group.
But Kies acknowledged that “no one knows exactly” how much reducing the deduction would affect giving. A report last year by the Center on Philanthropy at Indiana University concluded that the effect of Obama’s proposals to reduce the charitable deduction and raise tax rates for the wealthy would be a “relatively modest decline” of up to 1.3 percent in itemized giving, or $2.43 billion a year. Other estimates have ranged as high as $7 billion a year.
Some in the sector are skeptical that there would be any significant change.
“People give from the heart,” said Jack Shakely, who headed the California Community Foundation, a large nonprofit, for 25 years. “They are grateful for the deduction if they can take advantage of it, but can you imagine if you normally gave $1,000 to a university and you gave them a check for $910? You would look like a jerk, and people know that.”
Alice Crites and Lori Montgomery contributed to this report.