If Congress fails to act before the end of this year, automatic across-the-board spending cuts will further reduce funding for almost every domestic program and significant tax increases will hit almost all Americans. These forces will become twin threats against communities served by the work of Donors Forum’s nonprofit Forum Partners – and all other charitable nonprofits across the U.S.

First, the additional spending cuts of almost $55 billion will significantly increase the demand for help in our communities while simultaneously decreasing resources for nonprofits to provide services. Second, in addressing tax issues, Congress is considering proposals to cap all itemized deductions, including the charitable giving incentive, which would further reduce donations and threaten the ability of nonprofits to serve their communities.

Eight and one-half percent (8.5%) of Illinois’ revenue is subject to federal sequestration because of federal grants.  Who would be among the hardest hit? Families with children.

• $24,570,000 cut from Illinois children in Head Start
• $6,240,000 cut from Illinois children through Child Development Block Grants

How would going over this cliff affect people’s jobs? We in Illinois would lose more than 19,000 jobs from 2% Medicare cuts, affecting families even further.

More broadly, the fiscal cliff contains two major threats to charitable nonprofits’ ability to collectively solve problems and strengthen our communities.

Impact of More Arbitrary Spending Cuts

The first threat comes from the automatic $54.6 billion across-the-board sequestration cuts scheduled to occur on January 2, 2013. These spending cuts to domestic programs will both (a) increase the public’s demand for services provided by nonprofits and (b) reduce funds for governments to pay their contracts with nonprofits.

The arbitrary and across-the-board spending cuts of eight to nine percent to virtually every domestic program that are due to take effect on January 2 will be added on top of five straight years of cuts at the local, state, and federal levels, including $1 trillion in cuts authorized by Congress in recent years. During this recession, the workload of Donors Forum’s nonprofit Partners and many other charitable nonprofits has increased as poverty levels have risen. Nationwide, research shows that the demands on the nonprofit sector have soared since at least 2008, with 85 percent of nonprofits reporting increases in 2011, on top of 77 percent reporting increases in 2010, 77 percent reporting increases in 2009, and 73 percent reporting increases in 2008.  These trends are consistent with a survey Donors Forum conducted of its Forum Partners last spring.  After years of a struggling economy, Illinois nonprofits — and the people we serve — simply do not have the capacity to continue to bear this additional burden.

Serious Threat to Charitable Giving Incentive

The second threat comes from how Congress and the President will avert the fiscal cliff. Policymakers are giving serious consideration to a proposal to cap all itemized deductions at a specific level, such as $15,000, $17,000, or $25,000 per individual taxpayer. Yet the national average for all deductions – health care, mortgage interest, state/local taxes paid, and charitable giving – is more than $26,000.

Such a cap would eliminate any tax incentive for donations to nonprofit charitable 501c3 organizations, including religious institutions. The big fixed-cost deductions, such as for mortgage interest (national average of $10,640 in 2010) and state/local taxes (national average of $11,593 in 2010), whichcombined total $22,233, would eat away the entire deduction at the levels being discussed, leaving no room for discretionary gifts to the work of the nonprofits (Source: “Average Tax Deductions, State by State,” Wall Street Journal, Nov. 18, 2012.)

A cap on the charitable deduction could deal a staggering blow to many nonprofits and hamper the efficacy of philanthropy, adding to the several layers of cuts that have already left many organizations struggling to meet their community’s needs.

In response to this threat, we are communicating our position with U.S. Senator Richard Durbin and other members of the Illinois Congressional delegation, have co-signed a national letter from Independent Sector calling for the preservation of charitable deductions, and have urged our many advocates to share their stories with their Representatives in Congress, as well.

You can take action here.

Find additional resources here:

Fiscal Cliff Components (National Council of Nonprofits/Donors Forum)

Under Threat: Sequestration’s Impact on Nondefense Jobs and Services (Report prepared by Sen. Tom Harkin, D-IA)

Impact of the Fiscal Cliff on the States (Pew Center on the States)

Sequestration and the Impact on State Child Welfare Budgets (Child Welfare League of America)

— Valerie S. Lies, President and CEO