OMB Watch Letter to Congress Opposing HR7

The following is the text of a letter from OMB Watch to Congress on HR 7. July 16, 2001 Dear Member: The President's faith-based initiative, H.R. 7, the “Community Solutions Act,” will likely be on the House floor this week, probably on Wednesday, July 18. OMB Watch strongly urges you to oppose the bill. We do so not simply out of opposition to the “charitable choice” provisions, but also because the charitable giving provisions, particularly the non-itemizer deduction, have become too watered down. OMB Watch is a nonprofit research and advocacy organization. We work with thousands of nonprofit organizations across the country. Last year, working with other organizations, we surveyed charities across the country to identify policy recommendations President Bush should take to strengthen the nonprofit sector. The recommendations, available at www.ombwatch.org/files/npagenda, have helped to guide our reaction to the bill since they addressed charitable choice and charitable giving issues. OMB Watch supports the idea of allowing taxpayers who do not itemize to fully deduct charitable contributions. However, we believe the version headed to the floor is so weak as to be counterproductive and potentially damaging to this laudable goal. While some organizations believe the non-itemizer deduction is worthy of support because it is “a foot in the door,” we disagree. The maximum deduction is $25 for the next two years rising to $100 in 2009 (double these numbers for couples), yielding a tax break of $3.75 rising to $15 for non-itemizing taxpayers. Given that the average giving by non-itemizers is $328, it becomes clear that this bill creates no incentive for new giving. Yet it costs $6.4 billion over 10 years as a tax expenditure without any real return to charity. We oppose this sham non-itemizer because: 1. It creates no incentive for new giving. (Some we talked to have said they believe it may even have a chilling effect on donations by setting such a terribly low maximum.) 2. It costs over $6 billion. A few years into it, there will likely be questions about the value of the non-itemizer deduction since it will have cost the Treasury so much while having failed to increase charitable giving to make up for it. This will put nonprofits in an untenable position. 3. It is worth almost nothing to lower-income givers, an audience we hoped the deduction would help. 4. The $6.4 billion could be better used for other priorities, especially in light of the fact that, coupled with the recent tax cuts and the shrinking surplus, it will likely result in dipping into the Medicare Part A trust fund in the near future. Turning to charitable choice, the version going to the House floor in H.R. 7 is the most objectionable part of the bill. OMB Watch has always supported faith-based organizations being eligible to receive federal funds – a policy that is current practice. We believe, as with any organization taking federal funds, certain obligations must also be embraced including accountability. For example, we believe nonprofit federal grantees should be tax exempt organizations filing publicly available annual tax reports with the IRS. The charitable choice provisions in H.R. 7 move in a very different direction. The provisions discriminate against existing nonprofit grantees by creating special opportunities for religious congregations. They force people in need to object to religious programming in order to opt-out and receive “alternative” services. In the end, the bill undermines the separation of church and state. Less discussed, but equally objectionable to OMB Watch, the bill allows programs to be converted to vouchers, which would seriously hurt nonprofit service delivery. In converting to vouchers, federal as well as state protections, such as hiring discrimination policies, can be negated. Nonprofit service delivery organizations would have no way to plan for the future since they have no idea how many people will use their services. This startling overhaul of service delivery will have been done without any serious debate over how vouchers would or would not work. Additionally, the bill has lax accountability standards, allowing such things as self-audits. Depending on which program regulations are relaxed, there can be major implications for program quality. Finally, it creates an unfunded mandate on states to provide secular alternatives where none exist, yet provides no money for such requirements. In fact, overall there is no new money for the charitable choice initiative. While there are some positive provisions in H.R. 7, such as the IRA rollovers, they are not worth the down side of H.R. 7. Combined – the sham non-itemizer and charitable choice – lead us to conclude that H.R. 7 should be opposed. Moreover, there are other provisions that concern us, such as the expanded liability protections to businesses for charitable contributions. OMB Watch will continue to work for strengthening charitable giving – including preservation of the estate tax, a real non-itemizer deduction, and the IRA rollover – but this bill is not it. For more on H.R. 7, see the OMB Watch analysis at http://www.ombwatch.org. We hope you will oppose H.R. 7, the Community Solutions Act. Sincerely, (signed) Gary D. Bass
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