With the average Utahn giving 10.6 percent of their income to philanthropic causes, any talk of tampering with charitable tax deductions is sure to make some local investors and nonprofits queasy.
Last week, Congress resumed its conversation about the role charitable giving should play in the tax code, with dozens of witnesses testifying before the House Ways and Means Committee. President Barack Obama and some Republicans have suggested capping tax breaks for the top 20 percent of taxpayers, arguing it would be fairer and could simplify tax filings. Others say limiting the deduction would severely cut into charities’ bottom lines.
Brent Andrewsen, a shareholder at the law firm Kirton McConkie, said his estate-planning clients are watching the discussion closely.
"I think it’s fair to say that anytime Congress is talking about changes, clients are very concerned," he said.
Andrewsen said individual taxpayers are nervous about anything that would increase their taxes, from instituting a cap on the dollar amount of itemized deductions to replacing tax breaks with tax credits.
"The reality is there has been so much talk. There’s constant discussion of possible changes," said Andrewsen. "People are just skittish. They don’t know what’s going to happen."
He notes that nervousness also extends to his nonprofit clients, which rely on charitable giving to survive.
"What’s been in place has really been an incentive, and when you reduce or eliminate that incentive, people’s behavior changes," Andrewsen said. "Charities are probably right to be concerned."
According to the Utah Nonprofits Association, there were more than 5,500 nonprofits based in Utah in 2009. Today, that number is down to 3,500, with 75 percent bringing in less than $100,000 per year in revenue.
Once operating expenses are factored in, the razor-thin margins that result are why any reduction in charitable giving would hit nonprofits hard, said Fraser Nelson, executive director of the Community Foundation of Utah, a nonprofit that pools individual charitable contributions into various funds to support community-based causes.
Nelson said many local nonprofits are a critical part of the social safety net.
"We’ve seen an increased reliance on nonprofits to meet needs that the federal and state governments are unable or unwilling to do," said Nelson. "Private dollars are crucial to the success of those programs."
Case-in-point is early childhood education in Utah. The Salt Lake Community Action Program runs 75 Head Start sites in Salt Lake and Tooele counties. The program serves about 2,400 preschool children from families living well below the poverty line, while another 1,000 kids are on a waiting list, said Head Start community partnership manager Joni Clark.
Although about 90 percent of its funding comes from federal sources, Clark said the organization would feel any decline in private donations.
"A cap (on charitable contributions) would definitely hurt our agency," Clark said. "With sequestration (automatic federal cuts) on the one hand and charitable tax deductions on the other, we’re kind of getting hit on both ends. Together [they] would definitely have impact on the children we serve. And sending more kids who aren’t prepared into kindergarten would have a definite impact on our public schools if we’re not able to prepare them."
Not everyone, however, thinks tweaking the charity tax-deduction policy will heavily influence giving.
Scott Bergeson, a retired executive with American Stores Co. and chairman of the board of Fidelity Charitable, puts himself into the "top 10 percent" of taxpayers but said that at one point or another during his life he’s been in all the income brackets — low-earning, middle income and high income.
He said that although about 20 percent to 25 percent of his income today goes to charity, and that the deduction he gets is nice, the write-off has not tipped the scales on whether he and his wife have contributed to a charity.
"I have to tell you that getting a tax deduction is a factor in that it makes more money available to give to areas of which I have interest, but it isn’t the primary motivator," Bergeson said. "It certainly plays into the equation, but it isn’t the primary driver."
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