Charities disappointed in tax cut bill

WASHINGTON -- Leading charities Tuesday questioned President Bush's commitment to boost community organizations, following the White House's agreement to drop from the tax cut bill provisions aimed at spurring charitable giving.

In negotiations over the $1.35 trillion, 10-year tax legislation that was approved by the House and Senate on Saturday, the White House agreed to do without $90 billion in breaks to aid charities as the administration put a higher priority on reducing income tax rates, Republican and Democratic congressional negotiators said.

The breaks to aid charities, among Bush's first campaign pledges, were a key part of the president's effort to spur giving to charitable organizations so they could play a greater role in combatting the country's social problems. The breaks were in Bush's initial tax cut proposal but were dropped in Congress, and last-minute efforts by congressional sponsors to reinstate the provisions failed last week amid tepid White House support.

"Congress has passed a bill that will reduce charitable giving and harm the millions of Americans who rely on the vital services provided by charitable organizations," said Peter Shiras, head of programs for Independent Sector, a nonprofit consortium.

Kenneth Gladish, executive director of YMCA of the USA, suggested that charities lost out to more powerful interests in the tax debate. "On the one hand the administration and leaders in Congress talk about how absolutely central the service of community organizations is, but on the other hand there's far less consideration and devotion than we'd hope would be the case," he said.

Non-profits say the blow from the tax cut bill is twofold. It omitted a charitable tax deduction for those who don't itemize their returns -- a provision that would have increased charitable giving by $15 billion a year, according to a PricewaterhouseCoopers study commissioned by Independent Sector. The legislation also included the repeal of the estate tax, which will deprive nonprofits of up to $6 billion a year from bequests, the group said.

The legislation also dropped provisions that would have increased the amount corporations could give tax-free to charity, and allowed tax-free donations to charities from Individual Retirement Accounts.

White House officials and some allies in Congress say the proposals are still alive and will be part of the overall 'faith-based initiative' legislation, which would also make it easier for the government to finance religious charities.

Hearings on the proposal begin in the House when Congress returns from recess next week. "The president believes it fits well and moves nicely with the faith initiative," White House press secretary Ari Fleischer said. "The president is hopeful this will happen. It's the right thing to do."

But nonprofits and officials on Capitol Hill say that's a long shot. The broader faith-based initiative is stalled in the Senate over Constitutional objections, and Democrats, who will soon control the Senate, have said further tax breaks are unlikely. "I can't see how it's going to happen," said Hannah Rosenthal, director of the Jewish Council for Public Affairs.

The main charitable tax break would have gone to nearly 85 million American households who do not itemize their tax returns. These Americans, largely low or middle income, tend to give a higher proportion of their income to charity but can't deduct the contributions from their taxes.

The charitable tax breaks were a core part of the 'compassionate conservative' agenda introduced by Bush in his first major policy speech in July 1999. "We will encourage an outpouring of giving in America," he said then, "encouraging giving by everyone in our society, not just the wealthy."

But lawmakers wrote the legislation without the credits. A senior Republican staffer said the charitable tax deduction was 'never high on anyone's list,' even the White House's. "In reality, the bottom line was that their priorities were in the rates, the death tax, marriage penalty and the child credit," the staffer said.

An administration official agreed that during the tax debate, officials 'were focusing like a laser beam on the big four' -- tax rate and marriage penalty reductions, boosting the child credit and eliminating the estate tax. "Those were the priorities, the key things we never stopped focusing on."