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Jewish Groups Fear Impact on Giving if Congress Places Cap on Deductions

Jewish institutions are concerned the Bush administration and Congress may agree to place a ceiling on deductions that can be taken on federal income tax returns, including those taken for charitable contributions.

A cap on deductions is one of the proposals currently being discussed in President Bush’s negotiations with congressional leaders on reducing the federal deficit.

The Council of Jewish Federations is urging the Jewish community to lobby members of Congress against such a ceiling, which would also cover deductions for such items as mortgage interest, medical expenses, and state and local taxes.

Ellen Witman, associate director of CJF’s Washington Action Office, said the ceiling under consideration might limit an individual’s overall deductions to $50,000.

Witman said the proposal is “not an attempt to go after the charitable deduction,” but “is an attempt to raise revenues” to help balance the federal budget.

“I’m not saying that Congress is out to get the charitable deduction,” she said, “but the unintended consequence of capping all deductions is going to be that it may have a severe impact on charitable giving.”

While the idea of limiting charitable deductions has been floated previously, this marks the first time such an overall cap has been discussed, Witman said. She predicted the proposal will be “seriously considered” when the “budget summit” resumes Sept. 3.

The summit, which is to meet initially in seclusion at Andrews Air Force Base, is being held to avert an automatic across-the-board budget cut of $105 billion. That cut will take effect Oct. 1 unless Congress brings the projected 1991 budget deficit in line with the Gramm-Rudman-Hollings Act’s $65 billion deficit target for the new fiscal year.

$105 BILLION MUST BE FOUND

Currently, the deficit is projected to be nearly $170 billion in 1991, so some combination of spending cuts and tax increases of $105 billion is needed.

CJF informed federation executives Aug. 10 that “if this option is included in the final deficit-reduction package, it will have a significant impact on the ability of charitable organizations to raise the funds necessary to provide services.”

“Federations and other organizations that rely heavily on large donations will be especially hard hit,” CJF warned.

CJF urged Jewish leaders to contact members of Congress to convey to budget negotiators that “the charitable deduction must be left intact.” It also urged them to contact the local United Way, Catholic Charities and other groups “to see what action they are taking on this issue.”

One of CJF’s arguments against capping deductions is that since the top two income-tax brackets pay 33 percent and 28 percent of overall income respectively, “the federal government would only receive 28 to 33 cents for each dollar contributed.”

Such a revenue gain would be “significantly smaller than the loss to the private agencies will be,” CJF said.

It also argued that “each dollar lost to the private agencies will result in additional costs to local, state, and federal governments as demand for public services increases.”

The government “may end up spending more than it saves on the additional cost of welfare, food stamps, shelter programs and refugee assistance, to name only a few programs,” CJF warned.

Jess Hordes, Washington representative of the Anti-Defamation League of B’nai B’rith, said a cutback in the deduction “would pose real problems for tax-exempt, charitable organizations.”

Witman said Jewish groups are hoping either that the budget summit agrees not to cap deductions or that Congress waives the Gramm-Rudman-Hollings targets, to avoid massive cuts in programs ranging from refugee assistance to foreign aid.

Any automatic cut would be “severe and massive,” Witman said, affecting such programs by as high as a one-third reduction.

The cuts in those programs are that large, since other major budget items, including the Social Security trust fund, military pay, the savings and loan bailout, and assistance to low-income Americans, are not up for negotiation.

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