NC: What the Fiscal Cliff Means to Nonprofits

The Fiscal Cliff: What It Means to Nonprofits

National Council for Community Behavioral Healthcare  November 19, 2012


The re-election of President Obama and the maintenance by the voters of essentially the status quo in Congress returns the same players to the bargaining table to address the fiscal crisis popularly referred to as the “fiscal cliff,” the automatic cuts of almost $110 billion in spending and the expiration of $500 billion in tax cuts at the end of the year. Federal policymakers have to act swiftly and thoughtfully to get the correct balance of reducing the nation’s debt and avoiding another recession as will occur by taking too much money out of the economy through spending cuts and taxes, according to the Congressional Budget Office. Depending on how Congress acts - delaying some or all of the fiscal challenges - charitable nonprofits and their work in communities could be significantly harmed. 


The first grouping of threats comes from the domestic portion of “sequestration,” the automatic $54.6 billion across-the-board spending cuts scheduled to occur on January 2, 2013. These arbitrary cuts to domestic programs threaten charitable nonprofits by (a) reducing funds for governments to support individuals in need and pay for services provided by nonprofits, and (b) increasing the number and needs of individuals turning to nonprofits for services. A related threat is that many policymakers have tried to shift all or some of the scheduled $54.6 billion in defense cuts over to domestic programs. (For more, read these previous articles in the Chronicle of Philanthropy and Huffington Post.)


The second grouping of threats comes from how policymakers will change tax policy to cut the nation’s long-term debt. Republicans have partially changed their position and are acknowledging that revenue increases will be needed to avert the “fiscal cliff,” but continue to resist allowing tax rates on upper-income taxpayers to go into effect at year’s end. One way under discussion by both political parties is to increase revenues by eliminating or reducing various credits and deductions by applying a cap to itemized deductions, as was proposed by Governor Romney during the election campaign, an idea now endorsed by the Washington Post. Nonprofits are gravely concerned that a cap on itemized deductions would significantly reduce charitable contributions because such a cap for individuals would be consumed largely by deductions for mortgage interest and state/local taxes, leaving little or no room under the cap for discretionary gifts to the work of the charities.