Charitable Deduction Cap Strikes Fear in College Officials

Posted March 10, 2009 at 6:22pm

With the slumping economy battering their once-healthy endowments, college and university officials are beginning to take a hard look at a White House proposal that they say may discourage charitable giving to their cash-strapped institutions.

In his budget released late last month, President Barack Obama proposed paying for health care reform by limiting the overall amount of deductions high-income earners may claim on their annual tax forms, write-offs that frequently wind up in the coffers of charities and academic institutions.

According to Obama’s budget blueprint, the White House plans to raise $318 billion for its health care plan by capping tax deductions at 28 percent — including write-offs for charitable donations — for families earning more than $250,000. Kenneth Baer, a spokesman for the Office of Management and Budget, suggested that previous administrations have given Obama no choice.

“We’re ending this era of irresponsibility, and for far too long tough choices have been avoided,— Baer said. “There’s a lot of people with great ideas who have had a lot of conferences and given a lot of speeches, but when it comes down to it you have to find a way to pay for it.—

But institutions of higher education may be hit particularly hard, experts say, adding to the bleak financial situation many academic administrators already find themselves in.

According to a survey in the Chronicle of Higher Education last month, college and university endowments lost roughly 23 percent of their value in a recent five-month period.

In 2008, Stanford University was the top-ranked fundraiser among American colleges and universities, according to a recent study by the Council for Aid to Education. The Palo Alto, Calif., school raised roughly $785 million in 2008, outpacing Harvard, Columbia, Yale and the University of Pennsylvania.

Of Stanford’s 2008 total, roughly one-third came directly from alumni.

Larry Horton, a Stanford lobbyist, said it’s too early in the budget process for his office to go on the offensive. Still, he said, changes to the tax code are always on the radar of colleges and universities, particularly private schools such as Stanford that often rely on individuals and corporations to pay for what tuition and fees don’t cover.

“It always is a matter of concern for us, but we haven’t examined it yet,— he said. “Traditionally, the charitable deduction has been the cornerstone of philanthropy.

“It’s very important to make sure that America is the only country in the world that has a thriving private sector that competes with the public sector,— he continued.

The Association of American Universities, which represents 62 public and private institutions in the United States and Canada, also is analyzing Obama’s budget to determine the possible impact of the proposed deductions cap.

AAU spokesman Barry Toiv said that with a research-heavy membership, a proposed flood of federal money for long-term projects may offset the proposed cuts, perhaps insulating AAU-affiliated institutions from damage.

“From a budgetary point of view from the federal government, the president and the Congress just made a decision to provide substantial amounts of money for basic research — most of which takes place at research universities,— he said. “Regardless of what we conclude about this particular provision, colleges and universities have nothing to complain about when it comes to what this Congress and this president have done.—

Cyndy Littlefield, a lobbyist with the Association of Jesuit Colleges and Universities, said that although the proposed ceiling is “not our highest priority at the moment— it could become more prominent once administrators crunch the numbers and determine how much damage the tax code tweak could do.

“At first blush, it does appear that there probably would be some challenges for institutions of higher education to further solicit contributions by those individuals in a certain income range,— Littlefield said. “It’s something that needs to be further examined and we all need to get a little more data and figure out if it would have a direct impact.—

Littlefield also said the full magnitude of the current economic crisis on universities and colleges likely will not be known until late 2009, “when everything will come to fruition,— she said.

“Higher education institutions — private ones in particular — give out a substantial amount of institutional aid,— Littlefield said. “For all of us in higher education, the biggest challenge will be the fall semester … we’ll see the full impact of the declining economy and on family budgets.—