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The Debt Deal and Struggling Nonprofits: A Real Satan Sandwich?

By Tom Watson on August 3, 2011No Comment

While the much-criticized “deal” to forestall the United States’ defaulting on its bonded debt obligations did avoid a take-down of the charitable deduction in the tax code, nonprofits and those who support them can hardly take comfort from the Tea Party’s grand bluff of the President and his Democratic allies in Washington. That’s because after three years of continued economic uncertainty and the inevitable cutbacks to nonprofit programs at the state and local levels that often reflect fewer Federal dollars over the long run, the Path ahead still looks rocky indeed.

For those who work in social services, the arts, education, healthcare, environmental action, and elsewhere in the social sector, the phrase “across the board cuts” has to cause an almost involuntary shudder. As executive directors and board members across the country know, Federal cutbacks have a long tale indeed: not only do they mean less funding for U.S.- sponsored programs, but they effect the budgets of states and municipalities (often in the following year or two) leading to more slicing of public funds to vital programs.

Consider nonprofit healthcare and the discussion around Medicare, Medicaid, “cost savings,” and reimbursement and fee rates. The right-wing push to cut the size of government has placed a crosshairs over a major revenue source for the nonprofit institutions that serve communities around the country. Cuts to Medicare payments to doctors and hospitals are among the so-called “automatic” cuts insisted upon by the GOP as a virtual threat to their Democratic counterparts to trim an actual $1.5 trillion from the Federal budget. They’re an axe hanging over the head of the vast nonprofit healthcare system.

Wrote Sarah Kliff in the Washington Post: “Medicare providers are among the clear losers in the debt ceiling deal. Come November, they face two really unpleasant options: absorbing whatever cuts the congressional super committee settles on, or, if the group doesn’t reach an agreement, absorbing an across-the-board budget reduction.”

And that’s direct Federal money. As was clear in the real crisis of 2008, the fall-out is often felt a year or more later when, despite initial Federal stimulus funds, public money declined and states and cities pulled in their budgets. For now, it looks like the charitable tax deduction will survive, but it also seems certain the “Super Congress” will consider it among a package of cuts.

“We assume that the new committee will certainly consider the cap on deductions,” said Jason Lee, a lawyer for the Association of Fundraising Professionals, a trade group that is opposed to reducing the value of the charitable deduction, told the Chronicle of Philanthropy. “So we’re working under the premise that we still have our work cut out for us.”

And as United Way Worldwide CEO Brian Gallagher writes in the Huffington Post: “At a time when unemployment remains high, our nation’s most vulnerable families need more help, not less. States can’t fill the gap and most are cutting their human services budgets. As a result, more and more people are turning to charities for assistance. Thus, any change to the federal tax code that undermines charitable giving is a bad idea.”

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