Wary fund-raisers relieved by ‘cliff’ deal
New restrictions on deductions and exemptions worries Joshua Rednik.
January 9, 2013
Jewish communal leaders expressed relief that tax deductions on charitable giving were not stripped away as Congress voted to avoid the “fiscal cliff.”
But a week after legislation provided a combination of tax increases and spending cuts, fund-raisers and foundation executives continued to examine the fine print to determine how tax increases for people in upper-income brackets may affect their charitable donations.
The new law raised top tax rates to 39.6 percent for individuals making more than $400,000 a year and families earning more than $450,000, making the rest of the so-called “Bush tax cuts” for working and middle-class families permanent.
During negotiations, the Obama administration signaled it was considering caps or cuts to the 100-year-old tax benefit for those who give to charities.
“We are very happy that Congress continued the income tax deductions for charitable contributions and the IRA charitable rollover,” said Jacob Toporek, executive director of the NJ State Association of Jewish Federations.
The rollover allows those who cash in Individual Retirement Accounts to donate up to $100,000 to charities without facing tax obligations.
Toporek said he had “no idea” whether tax increases for the wealthy will affect their gifts to the federations.
“It is one of the concerns we have. We will have to see how that works out, and we will have to redouble our efforts to reach out to people in those brackets,” he told NJJN.
Joshua Rednik, executive director of the Jewish Community Foundation of Greater MetroWest NJ, said it was “hard to say” whether higher tax rates would reduce charitable giving by the wealthy. He cited research from the Indiana University Center for Philanthropy.
“The biggest reasons why major donors make their gifts has very little to do with tax planning. The psychological and communal benefits that come from their gifts and advice from people they trust were bigger influences,” he said. “They give to charity because they want to see good done with their wealth. But tax planning does play a role.”
Rednik said he is monitoring the effects of a rise on tax rates from 15 to 20 percent on dividends and capital gains for couples earning $450,000 or more.
“A lot of people give appreciated securities” — stocks and bonds that have increased in market value — “to charity anyway. Because the tax rate on those profits is even higher now, if people were to sell it themselves means there is an even greater incentive to give them to charity.”
Others in the federation world were pleased with much of the legislation.
In a New Year’s Day e-mail to Jewish communal leaders, Jonathan Westin, health policy director at the Jewish Federations of North America, noted that other parts of the legislation prevented a 27 percent reduction in payments to Medicare physicians, gave a year-long extension to a moratorium on caps for therapy in nursing homes, and created a 13-member Congressional Commission on Long-Term Care.
But the law eliminated the Community Living Assistance Services and Supports (CLASS) program, a voluntary, employee-paid mechanism for paying for long-term care that had been inactive for much of 2012.
“We are pleased with the medical provisions except for the repeal of the CLASS program,” Toporek said.
Rednik is also waiting to see the impact of the increase in the estate-tax exemption, which rose to $5.12 million.
“A couple can now pass close to $10.25 million to heirs without being taxed by the federal government. It could mean less money coming to charities from those estates. We are going to have to wait and see.
“What worries me the most,” Rednik said, “is a new restriction on itemized deductions and personal exemptions for individuals making more than $250,000 and married couples earning more than $300,000.”
Howard Rabner, chief operating and financial officer for the Jewish Federation of Greater MetroWest NJ, said he hoped changes in deductions would have minimal impact on giving.
“A couple earning $1 million is only going to lose $21,000 in itemized deductions,” he said. “It is a return to what rates were in the 1990s. It is too soon to tell what impact it will have on the federation, but I am hopeful it won’t be significant.”