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January 9, 2013 By:
Nonprofits Brace for Next Fiscal Crisis
Congress may not have driven the nation off the fiscal cliff, but Jewish nonprofits are still bracing for a wild ride in the months ahead.
The compromise deal signed into law by President Barack Obama on Jan. 3 did not contain any significant cuts to federal programs that serve the elderly, poor and disabled. But nonprofit officials fear that looming talks over the federal debt ceiling and sequestration could result in steep cuts and perhaps a major overhaul to popular entitlement programs such as Medicare, Medicaid and Social Security.
The nonprofit community did score a major victory as the deal did not include Obama’s proposal to cap tax deductions for charitable contributions at 28 percent, down from the current maximum of 35 percent.
Such a reduction, nonprofit heads warned, would have had a disasterous effect on charitable giving. Obama had contended all along that the change wouldn’t have had a noticeable impact.
But several experts cautioned that a series of provisions contained within the 100-plus-page bill could affect the highest earners and reduce the financial tax incentives for the wealthy to give to charity.
Andre Krug, president and CEO of the Klein JCC, which relies on both government dollars and private fundraising to serve an elderly and low-income population, said he was watching the fiscal cliff standoff with bated breath — and he’s not breathing any easier now.
“They just kicked the can down the road. The issues of spending have not been resolved yet,” said Krug. “I’m not at all at ease in terms of being out of the woods.”
One thing that has already happened as a result of the deal was the expiration of the payroll tax cuts — meaning that most workers will pay an additional 2 percent tax out of their salaries. Someone making $50,000 a year could expect to pay an additional $1,000 in taxes.
Krug said that this won’t affect most of the seniors served at the Klein since the bulk of them are retired. But the expiration of the payroll tax cut will make life more difficult, particularly for younger families who send children to day care at the JCC. Krug said that roughly 80 percent of those families earn less than $50,000 a year.
Brian Gralnick, who directs the Center for Social Responsibility at the Jewish Federation of Greater Philadelphia, said that nonprofits are operating with the assumption that anything might be up for discussion in an effort to cut federal spending, including early childhood programs, homeless shelters, federal funding for the food stamps program and the amount that hospitals are reimbursed by Medicare.
It’s the job of agencies like federations, he said, to let government officials know about the potential impact of proposed cuts.
“Who knows what plans there will be for reforming Medicare and Social Security and what impact that will have on seniors?” said Gralnick, who is serving on the transition team of Eugene DePasquale, the state’s incoming auditor general, offering advice on issues relevant to seniors and low-income families.
Paula Goldstein, president/CEO of the Jewish Family and Children’s Service of Greater Philadelphia, explained that the uncertainty surrounding deficit-reduction talks comes as nonprofits dealing with the broad health sector are trying to comprehend the Affordable Care Act. It will be a challenge, she said, to remain relevant in a health system that may be dramatically transformed by the implementation of the health care act.
“How do we position ourselves to be a major player as these shifts are occurring?” posed Goldstein.
While much of the talk about cuts to government spending remains hypothetical, the Taxpayer Relief Act of 2012 — the bill signed into law that averted the fiscal cliff — contained some very real provisions on taxes. But experts in the nonprofit field are still analyzing the details and figuring out its implications.
Jared Szychter, a local tax accountant who advises wealthy clients, said that one change is a new limit on itemized deduction to 3 percent of an individual’s income over $300,000 a year. For example, a married couple earning $400,000 would lose about $3,000 in itemized deductions, he said.
“It should only have a minimal, if any, effect on charitable contributions,” he said.
But Robert Evans, a former Federation fundraiser who is the founder and manager of EHL Consulting, a firm that advises nonprofits, said this and other policy changes could make a difference in how much nonprofits are able to raise.
“The implications are going to have to be weighed strategically and carefully,” he said. “While we like to believe that charitable giving is an American institution, and most donors don’t make charitable gifts based solely on tax deduction, there is always a relationship.”
Still Time Left To Give
The compromise reached by Congress and the White House to avert the fiscal cliff contained at least one time-sensitive provision, and nonprofits such as the Jewish Federation of Greater Philadelphia are trying to get out the word to donors as quickly as possible.
People who are 70-and-a-half or older can donate up to $100,000 from their IRA (Individual Retirement Account) without suffering any tax consequences. That’s been the case since 2008, but many expected that provision to be eliminated as part of the fiscal cliff deal.
Because the deal came so late, Congress is allowing donors to make such a gift now and have it count as part of their 2012 tax returns — but they have to do so by the end of this month. As far as 2013 is concerned, individuals have all year to take advantage of this tax policy.
Rachel Gross, director of planned giving and endowments at Federation, said, “A lot of people have substantial assets in their IRAs and this is a great way for people to make gifts.”
“We’ve been waiting for this legislation for months,” she said, adding that for 2012, there is “such a short window.”