Advocacy News

Update on Charitable Deduction and Congress from the Americans for the Arts, Government & Public Affairs

OCTOBER 25, 2011

BACKGROUND

For three consecutive years, the Obama Administration has proposed capping the value of charitable deductions to 28 percent for those taxpayers who itemize. Currently, the value of the deduction is tied to the marginal income tax rate the donor pays; 35% for the highest earning families. The administration has used this proposal to help close revenue gaps for everything from the newly enacted health care law to federal deficit reduction. Each time, Congress has passed on seriously considering the cap.

The nonprofit community has remained vigilant in opposition to itemized deduction changes. Most analysis, including a recent Congressional Budget Office study, show charitable giving would drop if the tax incentive’s value were to be reduced. Urban Institute research shows that charitable giving to the arts would be among the most affected by this kind of tax change. To that end, Americans for the Arts has been working closely with nonprofit sector advocacy groups like Independent Sector, recently signing a letter addressed to Congress and the Administration that was published in POLITICO, urging that the charitable deduction be taken off the table as a possible revenue raiser.

SENATE FINANCE HEARING ON CHARITABLE DEDUCTION

The U.S. Senate Finance Committee held a hearing on October 18, 2011 on possible reforms to the Charitable Deduction in response to the Obama Administration’s persistent call to propose limiting the value of itemized deductions. The administration’s latest attempt to cap the deduction was to raise revenues for the American Jobs Act which seeks to provide small business tax breaks, hiring incentives and infrastructure investment in an effort to spur sagging employment. The cap was recently removed from the jobs bill in large part due to the lack of support in using it as a “pay-for.”

The Senate Finance committee took the opportunity to nearly unanimously reject the president’s plan to limit the charitable deduction. In their opening statements, Finance Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) both praised nonprofit charities and their missions especially as they are a critical lifeline for goods and services during these hard economic times. Senator Hatch went even further in defense of charitable incentives in his statement saying “As state and local governments grapple with budget deficits and revenue shortfalls, Americans in crisis are turning for help in ever greater numbers to churches, charities, shelters, and other social welfare groups. Charitable donations are the lifeblood of charities and the last thing Congress should do is interrupt the blood supply.”

Testimony at the hearing consisted of various organizations such as the United Way and Church of Latter Day Saints along with the Congressional Budget Office and Urban Institute. The panelists had varying opinions on how best to preserve and administer the charitable deduction. Some were in favor of major reforms while most believed that it needed little amending and is the model for charitable giving around the world. Even the most critical voices expressed with some certainty that the proposed cap would impact giving negatively, but as to how much was disputed.

What became abundantly clear is that the panel and the senators almost unanimously agreed about the social value and worth of the arts and their importance in shaping, building and preserving communities. Often the arts have been maligned as patronage and not sometimes worthy of the same treatment under the tax code as direct social services provided by such organizations as the Catholic Charities and the United Way. In fact, United Way President and CEO Brian Gallagher directly refuted this misperception by praising the arts as “a huge part of community development - as part of the common good; I have seen the crossover between the arts and human services. We should not parse between the different nonprofits.” Ranking Member Hatch said resolutely, “Congress has wisely chosen not to prefer one charity over another” when talking about the charitable deduction. Senator Hatch added that he hears criticism of charitable contributions to the arts but cited the importance of helping the sick and the underprivileged through use of the arts, demonstrating their public good. He himself came from an underprivileged background and acknowledged how the arts had aided his development.

Elder Dallin Oaks of the Church of Latter Day Saints sternly warned against government making the decision of what is a charity and commenting that it should be left to the “marketplace of donations.”

LOOKING FORWARD

It has become evident that the charitable deduction enjoys broad, popular and bipartisan support. Any attempt to devalue the deduction, to this point, has been met with extreme prejudice by the majority of Congress. The larger question becomes how the deduction fits into the entire tax reform effort that has become a prominent ancillary of recent deficit reduction negotiations. It is clear tinkering with it to pay for other programming is highly controversial. But with momentum building for sweeping, comprehensive reform of the tax code, the charitable deduction will be part of a larger conversation to find more government revenue to address the national debt while still preserving the traditional role and treatment of nonprofit charities.

Questions? Please contact Americans for the Arts Associate Director of Federal Affairs Gladstone Payton at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Senate hearing materials online http://finance.senate.gov/hearings/hearing/?id=915d5477-5056-a032- 524b-feac6e9e3321

Congress Considering FY11 Funding - Anti-Museum Amendments are Possible

FEBRUARY 18, 2011 – The U.S. House of Representatives has been debating a bill this week, H.R. 1, to fund the federal government for the rest of the current fiscal year (FY11), which began on October 1, 2010. (Federal agencies have been operating under a “Continuing Resolution” that keeps the government operating because a federal budget has not yet been enacted for FY11.)  Nearly 600 amendments proposing cuts to numerous agencies and programs were filed, which means that they could be formally offered as the House continues consideration of the bill. Several of them target museums. 

An amendment (#471) was filed by Rep. Robert Goodlatte (R-VA) to prohibit the use of funds provided by the bill to fund non-federal museums. This could formally be offered at any time. We are monitoring the situation.  An amendment (#35) was filed by Rep. Scott Garrett (R-NJ) to de-fund the Institute of Museum and Library Services for the remainder of FY11. (It appears that this amendment will not be formally offered, but we are continuing to monitor the House Floor, just in case.)

We strongly encourage you to call your Congressional Offices and urge them to oppose any amendment that would restrict funds to museums.  Please call 202-225-3121 and urge your Representative to OPPOSE any amendment to restrict funding for museums.

When the bill passes the House – expected at some point this weekend – it will then go to the U.S. Senate for further consideration. The Senate is likely to take up the bill during the week of February 28, when museum advocates will be convening in Washington, DC for Museums Advocacy Day.

Already this week, the House voted on an amendment (offered by Rep. Tim Walberg from Michigan) to cut $20.6 million from the National Endowment for the Arts for the remainder of the current fiscal year (FY11). The vote was approved by a 217-209 vote. This is likely to mean some kind of reduction in funding for the agency as the FY11 budget is finalized between the House and Senate.

In related news, on Monday, President Obama released his FY12 budget proposal, which included cuts for many federal agencies. If the president’s budget were adopted by Congress (and there is still a long process ahead of us), the IMLS Office of Museum Services would get $32.3 million (an 8.2% reduction from its current funding level of $35.2 million). The president’s budget also called for the National Endowment for the Arts and the National Endowment for the Humanities to each receive $146 million, which would mean a $21 million cut for each agency. Congress will soon begin work to write its own version of a FY12 budget.

 See www.speakupformuseums.org for AAM President Ford W. Bell’s comments on this week’s House actions.