Political pundits are absorbed with the fiscal cliff facing America if the spending cuts and tax increases set to go into effect Jan. 1 are not somehow addressed.  To be sure, we all feel a sense of impending doom if this crisis is not averted.

But there is another fiscal cliff facing America that, if not also addressed, could spell disaster for millions in America and around the world.

This is the fiscal cliff for charitable giving, and the stakes could not be higher.

The nonprofit sector in America has become a vital part of our financial engine as a country.  Many do not realize its import, but it generates:

• Nearly 6 percent of the gross domestic product
• 1 out of 10 jobs in America (that’s 13.5 million)
• $668 billion in wages and benefits to its employees

The charitable sector has been under significant financial stress since the economic implosion of 2008. According to Giving USA, annual giving in America remains $12 billion less today than at the beginning of the recession in 2008.  And according to the Donorcentrics Index of National Fundraising Performance by Target Analytics, giving is not anticipated to rebound anytime soon.

Now, lawmakers on Capitol Hill are considering capping or eliminating deductions. But such a change to the charitable deduction would devastate non-profits across America and the charitable work that generates enormous good will locally and globally.  

A study in 2009 by the Center on Philanthropy showed that the proposal by the Obama administration to raise the marginal tax rate to 39.6 percent on annual earners of $200,000 or more ($250,000 for couples) and cap the charitable tax deduction at 28 percent (both still being proposed by the administration) would precipitate a 2.1 percent decline in giving.  In today’s dollars, that would be a $5 billion decrease.

Then there’s the proposal by the Bipartisan Policy Center’s Debt Reduction Task Force to eliminate the charitable deduction altogether in favor of a credit similar to the one used in the United Kingdom.  Per capita charitable giving in the U.K., however, is less than half of what it is in this country.  The bottom line is if giving in America mirrored giving in the U.K., there would be an annual drop of $131 billion in charitable giving.  This would be crippling to charities across America.

In a Dunham+Company/Campbell Rinker study conducted this year, 33 percent of donors said they would decrease their support of charities if the charitable deduction were eliminated. The intent to give would remain, but the amount they could afford to give would decrease.  Donors believe — and studies have shown — that charities are much more efficient in delivering social services than the government.

The Charitable Giving Coalition, in letters to President Obama and Speaker of the House John Boehner, urged both leaders to protect the charitable tax deduction as they deal with the fiscal cliff America is facing. The coalition’s point is that the charitable deduction is different from every other deduction in that:
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“. . . it encourages individuals to give away a portion of their income to those in need.  It rewards a selfless act, and it encourages taxpayers to give more funds to charities than they would otherwise have given.  Data suggests that for every dollar a donor gets in tax relief for his or her donation, the public typically receives three dollars of benefit.  No other tax provision generates that kind of positive public impact.”

The future of charity in America hangs in the balance…vital social services for victims of natural disasters … arts and sciences which make our society a place of beauty and substance… education which invests in the next generation … and help for those less fortunate around the world who are caught in the grip of poverty.

The significance of the charitable work of American non-profits is one of the things that sets us apart as a nation. It is a reflection of the generous heart of America. And helping to fuel that generosity is the charitable tax deduction, which is why it is worth protecting.

Rick Dunham is the President and CEO of Dunham+Company, which counsels charitable organizations on the development of effective marketing and fundraising.  His company is a member of the Charitable Giving Coalition and he serves on the board of The Giving Institute, which publishes Giving USA, the longest running report on giving in America.