US charities back rich on right to tax deductions

Amid a scrap in Congress over whether to raise taxes, advocates for the poor are lobbying for America's rich by seeking to preserve a mutual benefit: tax deductions for charitable contributions.

Charitable giving is a $300 billion annual affair in the United States, but it stands to take a huge hit if lawmakers agree to proposed rule changes on tax deductions as part of a broader deal to avoid the so-called "fiscal cliff."

Some non-profit groups, including charities that draw much of their funding from wealthy donors, are worried they could be decimated if Congress votes to reduce or even eliminate the itemized charitable deduction.

"If it's eliminated, we'll be finished," said Karla Grimsley of Interfaith Emergency Services, a Florida charity which shelters the homeless, provides groceries to the needy and buys prescription medications for the poor.

About a third of Americans itemize their deductions on their tax returns, according to the Internal Revenue Service, and those who do gave some $170 billion to charity in 2010.

With millions taking advantage of the deduction, including more than nine out of 10 households that make more than $500,000, President Barack Obama has said it is "unlikely" that the whole system will be scrapped.

Much more likely are restrictions that would either institute a deductions cap of $25,000 or $50,000, or a limit to the percentage of tax deductions for the wealthiest Americans, who are currently in a 35-percent tax bracket.

As part of a plan to raise $1.6 trillion in new tax revenue, Obama proposes to lower the maximum tax benefit to 28 percent for the wealthiest Americans, meaning that they would pay 28 cents less in taxes for every dollar given to charity or used for deductions like the home mortgage interest tax credit.

"It's going to affect us one way or another, and not in a positive way," Grimsley said.

Last week some 250 non-profit executives and volunteers took to Capitol Hill in an effort to lobby against the changes.

Steve Taylor, senior vice president for public policy at United Way Worldwide, the country's largest privately funded public charity, said lawmakers were receptive to the groups' push for preserving the deductions.

"This is the kind of thing that will hurt people at the bottom of the economic spectrum, because wealthy taxpayers will reduce their donations, and charities will have less capacity to provide services to the people who need our help the most," Taylor told AFP.

Taylor brushed off suggestions that the charities and the wealthy were in an awkward marriage of convenience in order to beat back potential restrictions.

"We rely really heavily on those donors at the high end," he said of his organization's $4 billion budget, 15 percent of which comes from the top one percent of donors.

For more than 100 years, Americans have had a tax incentive to give.

But after a brutal recession that plunged millions of Americans into poverty, many charities are at the breaking point, said Ken Berger, president of Charity Navigator.

"You have this situation where the charities are being hammered left and right," Berger said.

Many cash-strapped local and state governments have already slashed their contributions. "To saddle (charities) with this additional reduction in funding... is a recipe for really bad things to happen," Berger said.

Imposing a $25,000 cap on all high-end household deductions would reduce charitable giving by a staggering $200 billion over 10 years, the National Economic Council estimates.

The White House held a call last week with the charity community to lay out their position, a moved slammed by Republican Senator Orrin Hatch as a "bullying" tactic to gain support for tax hikes.

George Papadoyannis, a private wealth advisor in California dismissed the brinksmanship over charitable deductions, arguing that Americans will continue to donate out of loyalty and a commitment to do good.

"At the end of the day, most people give to charity not because of the write-off," he said. "People give because they want to give."

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