Colleges Worry That Tax Incentives for Donations Are Again on the Chopping Block

Higher-education advocates are closely watching how the current fiscal negotiations in Washington will affect federal support of colleges and universities.

But many are also concerned that a change in tax policy would affect an important private source of revenue to the industry: philanthropic giving, which topped $30-billion at American colleges and universities in 2011, according to the Council for Aid to Education.

Members of Congress on both sides of the aisle have said that limiting tax deductions, including the one for charitable giving, should be part of a compromise deficit-reduction deal to avoid sending the federal budget over a “fiscal cliff.”

Changes in the charitable-giving deduction, which allows tax filers who itemize their deductions to receive a tax break for donating to qualified nonprofit organizations, have previously been proposed as a way to increase federal revenue.

For instance, the deficit-reduction “supercommittee” in 2011 suggested replacing the deduction with a flat 12-percent tax credit. President Obama’s budget proposal earlier this year called for a limit on the value of the deduction.

Because most gifts in higher education come from wealthier, sophisticated donors, capping the charitable deduction could have a sizable impact on giving to colleges and universities, according to an Associated Press article by Justin Pope published this week. Mr. Pope writes:

Colleges have particular reason for concern. Compared to charities such as religious or social service organizations, education gets a hugely disproportionate share of contributions from the well-off. It’s wealthier taxpayers who itemize and benefit most from deductions—the higher your marginal tax rate, the bigger the “discount” you get on your taxes for giving to charity. So incentives for the wealthy to donate less could particularly affect education.

Last month 19 higher-education groups led by the American Council on Education sent letters urging President Obama and Congressional leaders to “proceed cautiously when considering changes to the current charitable deduction.”

“We strongly urge you to preserve strong federal tax incentives for charitable giving and avoid measures that could significantly affect charitable giving and thereby harm students, as well as the colleges and universities that serve them and our nation,” wrote the council’s president, Molly Corbett Broad.

Apart from higher-education groups, organizations representing charities have also recently stepped up their advocacy to preserve the charitable deduction.

A new public-opinion poll, released on Monday, found that a majority of Americans voters, both Democrats and Republicans, favor the deduction for charitable giving. The poll was commissioned by the National Association of College and University Business Officers and the Council for Advancement and Support of Education, which both support keeping the deduction.

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