Tax the wealthy and hurt charities

By Rick Dunhammarketing and fundraising executive One of the great ironies of the Great Recession is that charities are struggling … Continued

By Rick Dunham
marketing and fundraising executive

One of the great ironies of the Great Recession is that charities are struggling when we need them most. And now the federal government is considering changes in the 2010 budget that would only make things worse.

President Obama’s proposed budget would raise taxes on single households making $200,000 or more and couples making $250,000 or more, as well as limit their deduction for charitable giving to 28 percent, compared to the current 33 to 35 percent.

In practice, this could mean the demise of some charities, including the ones that work with people who have been hit hard by the recession. Many charities have already been forced to lay off workers.

The groups targeted in the budget proposal represent less than 3 percent of the households in the United States, but they make 43.5 percent of the individual charitable contributions, according to the Center on Philanthropy at Indiana University. In other words, these households represent the backbone of charitable giving in this country.

When President Obama first made a similar proposal a year ago, the Center on Philanthropy estimated that if the changes were enacted, charitable giving would drop by 2.1 percent. According to the most recent data available at the time, from 2006, that would represent a decrease of about $3.9 billion. Once you figure what that represents in today’s charitable donations, it would cost charities close to $5 billion.

This comes on the heels of two years of decreased charitable donations. According to the Center on Philanthropy, donations decreased by 2.7 percent in 2008 and 2.3 percent in 2009 … a slide in donations of nearly $12 billion. What’s worse, a more recent study by Boston College’s Center on Wealth and Philanthropy estimated that giving dropped in 2009 alone by as much as 4.9 percent, or around $10 billion.

The administration’s proposal also would shift much of the burden for meeting the needs of people who are hurting to the government. Which would you rather be in charge: the government, which is partly to blame for the economic mess we’re in, or charities like the Salvation Army, which do an amazing job?

As one radio personality recently noted, the administration’s proposals would mean replacing benevolence with bureaucracy.

These proposed changes come from an administration that loves to “villainize” the wealthy in this country. It’s easy to do that in this era of Wall Street scandals, but it’s a dishonest generalization when you realize that this demographic group makes almost half of the individual charitable contributions.

History also casts doubt on the wisdom of this approach. According to a study by Barclays Wealth, there have been four major boom/bust cycles in charitable giving since the 1500s. The boom comes with wealth generation and business innovation, and the bust comes with government intervention — exactly what the Obama Administration seems to have in mind.

In my travels working with charitable organizations around the world, I have found that the United States is unique in the way that it encourages charity. Our government has encouraged the private funding of charity through the charitable tax deduction. That’s one of the reasons we’re the most generous country in the world.

It’s not a good time to change.

Rick Dunham is the President and CEO of Dunham+Company, which helps ministries with their marketing and fundraising needs, and the author of “If God Will Provide, Why Do We Have to Ask for Money?

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  • angelae

    Allowing the wealthy to decide who gets help and who doesn’t is not democratic or ethical. Who do you want to decide–the People or rich people? Also, we need to examine where the wealthy give–it’s not to the people who need it the most. High income donors give more to education, health, and the arts (including large institutions — particularly colleges and universities and academic medical centers), not to smaller organizations providing social and other services:•Wolpert estimated a decade ago that only 10 percent of charitable contributions are targeted to the poor.

  • erinwhitewsp

    Which charities will go under? Can the author cite some examples? As a fundraiser for a nonprofit, I know that a majority of donors give because they believe in the cause, not because they will get a tax break. The tax break is an added bonus, but not the main incentive for supporting a charity.