MANKATO — While the fiscal cliff circus plays out in Washington, nonprofits are left wondering how their worlds will change depending on what measures are used to fix the problem.
If a deal can’t be reached to extend the Bush-era tax cuts for the middle class, giving to charities that rely on a lot of small donations could get hit hard. And if tax rates to go up on the top earners — or those top earners see their tax situation altered by the removal of so-called tax loopholes — all charities could suffer.
“The fiscal cliff poses real challenges to local nonprofits and the vitality and quality of life that we all enjoy in Mankato,” said Vickie Apel of the MRCI Foundation. “People give from the heart, but tax incentives make giving more heartfelt.”
One of the things being talked about most is a cap on the amount of charitable giving that can be deducted on taxes. Both President Obama and challenger Mitt Romney had such a cap as part of their plan to solve the fiscal cliff problem. Now that approach is still being discussed.
“If Congress takes away charitable giving tax incentives by capping charitable deductions, who then will be able to give?” Apel said. “MRCI Foundation receives more than half of its Annual Appeal gifts at year end. Clearly people are thinking about their charitable deductions and the tax advantages. And again, if people are using their usual but now proposed limited or capped deductions, such as mortgage interest, there is little left for nonprofits.”
Jon Pratt, executive director of the Minnesota Council of Nonprofits, said he was in Washington earlier this week along with hundreds of other nonprofit leaders. Their goal was to meet with lawmakers and get their message across that any fiscal cliff solution that uses nonprofits to shoulder some of the burden will hurt both nonprofits and the people they serve.
But it’s too early to panic, Pratt said.
“They’re still in the decision-making phase,” he said. “We’re urging (nonprofits) to contact their legislators.”
Tax rates will be the key to what ultimately happens to nonprofits. Whether its estate tax rates or income tax rates, people generally make a decision on whether to give based on the amount of money they take home after taxes.
Pratt said the best scenario for nonprofits would be a change in how charitable giving is treated at tax time. Instead of having it be among the deductions listed in an itemized list, it should be a general deduction on the main tax form. That would pull it out of the deduction-cap picture entirely.
Nancy Zallek at the Mankato Area Foundation said her donors are normally people who are giving more than just a few dollars. They’re interested in leaving a legacy for the community. They want to have an impact.
“They’ve made their wealth in this community,” she said, “and they want to give back.”
Zallek said the hardest part of all this is that there’s still so much that is unknown.
But one thing Zallek does know is this: Whenever there is a need, Mankato rises to the occasion.
“I tend to be a glass-half-full person,” she said. “My feeling is they’re still going to want to give back to community, still going to want to be generous.”
Still, Apel says there’s reason for worry.
If nonprofits are asked to shoulder some of the burden, how will that reconcile with the fact government has already been operating on the assumption that nonprofits will fill services that have been eliminated due to spending cuts.
“While most nonprofits understand that everyone has a responsibility to share in the pain of spending cuts, the implication in Congress is that nonprofits can fill in the gaps and serve those who will be no longer be served through federal, state and local programs,” Apel said. “How will that happen when the funding that nonprofits rely upon is no longer there? Nonprofits are already doing more with less, but there is no doubt that with increased demand and diminishing resources that the quality of services may suffer or services just may not be available to everyone who needs them.”