The following letter appeared in the Chronicle of Philanthropy in the issue dated March 7, 2002. To The Editor: As you noted in your February 21 issue ("Charities Offer Mixed Reviews of Bipartisan Plan to Help Religious Groups,") many charity leaders may support a Senate proposal that would give people who do not itemize on their tax returns a tax break for charitable donations totaling up to $400 per year. While we think it’s a good idea in principle, my organization, OMB Watch, is uneasy about the details of this proposal, as well as one already passed by the House that would cap eligible donations at $25 a year. Before Congress enacted last year's huge tax cut, a nonitemizer deduction made enormous sense, and we supported the idea. At that time, there were projected budget surpluses. We could invest in programs that serve our communities and, at the same time, provide generous tax cuts such as the nonitemizer deduction. But now circumstances are different. President Bush has put us between a rock and a hard place with his tax cuts, and he wants us to play a shell game: move the pea from one shell -- program spending -- to another – the nonitemizer deduction. To understand why ideas like a $400-per-person nonitemizer deduction no longer work, look at the big picture. President Bush has proposed a budget that takes a huge whack out of domestic discretionary spending, the very component of the federal budget that nonprofits depend on heavily. According to the Senate Budget Committee, domestic programs other than homeland security would be cut 6.2 percent next year, with continued cuts over the next decade. Moreover, some of the tax cuts that already have been enacted have a direct impact on nonprofits, and some have additional hidden costs that will put even greater pressure on domestic spending. The changes in the estate tax, which included a national phase-out of the tax by 2010 before it is reinstituted in 2011, is a good example. The tax is key to nonprofits in terms of social engineering and economic justice, as well as in terms of resources to support state and federal programs and direct charitable contributions. The estate tax would have generated an average of roughly $34 billion per year for the rest of the decade, roughly two times the size of the cuts that are proposed for domestic spending. With the estate tax, we could fully fund Head Start and expand child care for all families, for example. The changes in the estate tax will also cost states between $2-billion and $9-billion in revenue each year as the tax is phased out. This is at a time when the National Association of State Budget Officers and the National Governors Association report that state budget shortfalls have grown to $40-billion and some states are already making cuts in human services and other programs. The estate tax repeal will also have an impact on revenue that nonprofits obtain through charitable bequests and foundation grants because bequests help to endow foundations. Moreover, there will be additional pressure on spending programs at the federal level because of the $1.3-trillion tax cuts. Nearly everyone who follows tax issues recognizes that because of last summer's changes, more than one-third of taxpayers will be required to deal with the individual alternative minimum tax, unless it is revised by the end of 2004 when it expires. This next revision of the alternative minimum tax would likely cost at least an additional $300-billion over the next 10 years. Yet the President's budget does not count the cost of fixing the tax. The budget also does not take into account extending some tax cuts, such as the deduction for college tuition that expires in 2005, even though Congress surely will do so. So the big picture looks bleak. Now let's turn to the nonitemizer deduction, which, based on the Senate version, will cost $8.4-billion over two years and, if extended, more than $40-billion over 10 years. Independent Sector has been a leader in pursuing the tax cut, providing analyses that say nonprofits will get $1.15 for every $1 the government loses in revenue. But placed against the bigger picture of cuts for programs that nonprofit groups help administer, the nonitemizer deduction raises strategic questions. Will the nonitemizer deduction really generate much in new contributions, or is it a way to give those who are now contributing a tax break? No one knows, but Senators Max Baucus and Charles Grassley, the chair and ranking member of the Senate Finance Committee, have voiced concerns about the nonitemizer deduction. That means it will be difficult for it to pass in Congress in its current form. It is possible to make it less costly and to change it in a way that brings in more new contributions. But if it is just revised to cost less, in line with a version that the House passed – a maximum deduction of $25, rising to $100, which will cost $6.4 billion over 10 years – is it even worth it? And is the nonitemizer deduction an appropriate substitute to direct funding of services? Conservatives want to downsize the government and shift responsibility from Washington to local control and private, voluntary initiative. But even if very worthy nonprofits receive charitable contributions, it will in no way compensate for diminished ongoing federal support of key programs. Instead of questioning the wisdom of the tax cut enacted last summer or proposing to delay its implementation unless key domestic program get adequate support – which is what should be done – we now have to weigh an acknowledged valuable tax break, the nonitemizer deduction, against vitally needed federal programs. In the game the President wants us to play, the nonitemizer deduction isn't worth it. Gary Bass Executive Director OMB Watch Washington