By Michael Weiner and William Hawkes
As our nation approaches the fiscal cliff, our leaders face difficult decisions about service cuts and tax adjustments. Eliminating or severely curtailing the tax deduction on charitable gifts may serve to raise revenue, but the impact on our country’s most vulnerable citizens cannot be overlooked.
Likely service cuts already jeopardize the well-being of those on the margins, and the inevitable reduction in charitable giving that will result from cutting the charitable deduction will further erode necessary services.
The tax deduction on charitable gifts is an important incentive for supporters of charitable giving whose generosity helps fund services that cannot be provided by government alone. Any limitation or reduction in federal tax incentives for charitable giving is likely to result in a reduction in charitable giving, particularly among those in the highest tax brackets – those who typically make large charitable gifts.
Such reductions would limit the capacity of agencies to provide critical services to individuals and families who need them most.
Moreover, this impact on charitable giving would come just as federal and state governments are cutting funding for social programs, which are designed to help these same people.
Not only are the services provided by nonprofit agencies essential, they are cost effective in the long run. A recent economic impact study of 24 local agencies conducted by the Agency Executives Association, an initiative of the United Way of Buffalo & Erie County, found that a wide range of health and human services – most notably those that impact children, seniors and mental health consumers – have a significant return on investment.
The study found that every tax dollar invested in agency programs through government contracts netted $2.33 in savings as those services averted the need for more intensive – and more expensive – services.
The highest return on investment was found in programs that support the independence of senior citizens, thereby keeping them out of costly hospitals and nursing homes – costs frequently borne by taxpayers.
Cuts to nonprofit health and human services – whether through reduced government spending or less charitable giving – will exact a far higher price. As we stand at the fiscal cliff, the president and Congress must carefully consider the impact of every decision on our most fragile citizens. Preserving the tax deduction on charitable donations will help ensure a softer landing for those who can least afford the consequences of eliminating it.
Michael Weiner is president and CEO of the United Way of Buffalo and Erie County. William Hawkes is executive director of Neighborhood Legal Services and president of the Agency Executives Association.