Economy -- not tax changes -- seen as hurting nonprofits

It looks at first blush like another knock on budget-strapped charities and nonprofits: President Obama's budget plan would cut the tax-deduction rate for high-income Americans, reducing one of the incentives for giving to the arts, education, health care, religious groups and human-service agencies.
But nonprofit officials and tax experts say donors affected by the tightened tax loophole -- families making more than $250,000 -- are not ultimately driven by tax benefits when giving to their favorite charities. Besides, nonprofit budgets have more pressing problems these days with drops in endowment income, admissions fees and other day-to-day revenues.
High-income donors are "passionate about the institutions they give to," said Carnegie Museums of Pittsburgh President David Hillenbrand. "Obviously when there is a decline in the economic environment, everyone watches their wallet, but usually the giving is not driven by tax considerations."
Studies back that up. The 2007 Survey of Affluent Americans by U.S. Trust found only 33 percent pointed to tax reasons as a reason for giving to charities, while 88 percent cited a desire to give back to society.
Obama's $3.55 trillion 2010 budget plan proposes dropping top-tier tax-deduction rates from a high of 35 percent to a new cap of 28 percent, to help pay for health-care reforms. Those giving a charity $1,000 would see tax breaks of $350 drop to $280.
There are some caveats. Tax deductions for many high-income donors are already capped at 28 percent by the alternative minimum tax. Obama's plan also would phase in the deduction cuts over several years, starting in 2011.
The White House told a reporter from the Atlantic on Thursday that the charitable tax cut is about fairness.
"Right now, if a middle-class family donates a dollar to their favorite charity, they get a 15-cent deduction, but Warren Buffet and Bill Gates make the same donation and they get a deduction that is more than twice that. The proposal walks that back some of the way because it's time that everyone is responsible for our future," an administration official told the magazine.
One thing is clear: Should any institutions be hurt by the cut, they will be in health care, education and the arts. Sixty-six percent of Americans making $1 million or more give to such institutions, as compared with 7.5 percent of those making less than $100,000 annually, said accountant Ken McCrory of McCrory & McDowell in Pittsburgh.
"If there is an impact at all (from the tax-deduction cut), that remains to be seen," said McCrory, a trustee of the Pittsburgh Cultural Trust and other arts and cultural organizations citywide. "The bigger impact is income is down. That will hurt charities a lot more than whatever (donors) get from a tax break."

(Tim McNulty can be reached at tmcnulty(at)post-gazette.com.)

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
Must credit Pittsburgh Post-Gazette