What comes to mind when you hear the term "lame duck"?
This vintage editorial cartoon, depicting defeated Democrats hobbling up Pennsylvania Avenue to ask President Wilson for patronage jobs made me chuckle. However, there was not much of the "lame duck" quality to the just concluded 112th Congress, rather a bruising battle between the White House and Republican Members of Congress.
Our nonprofit community has been in the thick of things, participating in many dozens of Capitol Hill and White House meetings, phone calls, sign-on letters, advertisements, op-eds, and media interviews. In every visit, on both sides of the aisle, lawmakers expressed appreciation for the sector and acknowledged the value of the charitable deduction.
Together we successfully opposed efforts to put the charitable deduction on the chopping block, whether as the 28 percent cap on couples earning more than $250,000 preferred by the Administration, or a hard dollar aggregate cap that would essentially force taxpayers to choose between claiming deductions for their mortgage interest payments, their state and local taxes, and their gifts to charity. The estimated cost to the sector of the percentage cap was $7 billion per year; of the aggregated cap, as much as $78 billion per year. While the latter would virtually wipe out the deduction, the former also was not acceptable.
Cheers were muffled when at last an agreement was sealed. On the plus side, the deal protected key programs for Americans hurt worst by recession and a slow recovery. Emergency unemployment insurance benefits were extended for one year and the child and earned income tax credits for five years. Negotiators also avoided direct limitations on the charitable deduction and permitted key giving incentives such as the IRA charitable rollover to be reinstated and extended through the end of 2013. The deal, quickly signed by the President into law, made permanent the estate tax with a very modest adjustment from last year’s level of exempting $10 million for a family and taxing the rest at 35%. The latter was moved up to 40%, a far cry from 2001 levels of 55% with an exemption for the first $1 million. Individuals had the option of giving their money to charity instead of to Uncle Sam, and now with less of the estate taxed, less money will find its way to our organizations. One other disappointing add-back was the Pease provision, which reduces the value of itemized deductions by 3 percent of the amount by which a taxpayer's income exceeds $250,000 ($300,000 for households).
On the horizon are many battlegrounds where our budget and tax issues are likely to be raised. They include the impending fight over the national debt ceiling as well as the expiration of the two-month postponement of sequestration. This bloodless sounding word would, in fact, represent real pain for families living in poverty, if the discretionary programs they depend upon for food, heating oil, and other basic necessities are slashed. Entitlements, the lifelines millions of Americans rely on and have invested in for income security in their older years, health care, and disability insurance, are likely to be a part of future discussions.
The 113th Congress has its work cut out. Eighty new members took their seats on January 3rd but the breakdown by party remained largely the same. Of note though: a record number of 20 women senators, New Hampshire's all female bipartisan delegation, a disabled veteran helicopter pilot – also a woman, and the nation’s first openly gay Senator. Another interesting feature of this Congress is the return of nine former Members of Congress who went back to private life and then stepped forward once again to serve.
Negotiators of the fiscal cliff agreement and leaders of our sector alike enter this New Year exhausted, with a "to do" list as long as the eye can see. Managing the deficit remains at the top of the agenda in Washington. And part of that work will soon involve comprehensive tax reform. Our own sense of urgency cannot afford to flag, for the policy battles ahead involve the bedrock tax structure that defines the sector. As we wage the battles we must to preserve our tax status and incentives that encourage more giving, is this not also an opportunity to work with the White House and others on identifying new streams of capital and new ways to capitalize the sector?
How about a blue-ribbon panel to examine the revenue-generating potential of our sector? Its purview would be to find ways to draw more financial support into our sector, including, where appropriate, relaxing rules that make the flow of capital difficult. The path ahead for us is not a short one and in the end part of it is about resources. Let’s be sure we are also thinking about how to increase the pie.