For the third consecutive year, the tax deduction for charitable giving is in some policymakers’ sights – and nonprofit officials fear, given the belt-tightening mood in Washington, this time could be the charm.

Nonprofits have stressed that, with governments around the country looking at ways to cut costs, giving incentives to charitable donations is now as important as ever.

But with President Obama proposing once more to curtail the deduction, as he did in 2009 and 2010, and lawmakers indicating that very little is not on the table when it comes to deficit reduction and corporate tax reform, officials in the nonprofit sector feel more on the defensive than they have in previous years.

“We’re actually in a circumstance right now where the question as to why this sector is valuable is going to be conflated with questions of, can the government invest in this?,” said Diana Aviv, the chief executive of Independent Sector, a trade organization for nonprofits. “Is this the best way to spend our dollars?”

Under the president’s fiscal 2012 budget, the amount wealthy taxpayers could save through itemized deductions would be reduced to 28 percent, down from the current top level of 35 percent. The extra revenue would then go toward a three-year patch in the Alternative Minimum Tax. (In 2009, a similar proposal in the president’s budget was to help make healthcare more affordable.)

In February, Treasury Secretary Timothy Geithner defended the White House plan, suggesting both that the fiscal situation had forced the administration’s hand and that it was not fair to give the richest households a larger deduction for donating the same amount as less wealthy taxpayers.

“We don’t like doing this,” Geithner told the Senate Finance Committee. “The only reason we’re doing this is because, as many people have recognized in this room, we have unsustainable deficits. We’ve got to bring them down over time. And that’s going to force us to do things we’d otherwise not like to do.”

The president’s fiscal commission also sought to revamp the tax incentive for charitable giving, proposing to install a 12 percent credit for all taxpayers. A bipartisan group of senators – the so-called “Gang of Six” – is using the debt panel’s work as a guide for legislation to reduce the deficit, while more than 60 senators have called for that plan to be the foundation of talks on the issue.

All of those developments have left defenders of the charitable deduction somewhat worried, roughly two years after 94 senators voted for a measure aimed at protecting the tax break.

Congressional aides do say that lawmakers are looking at a vast number of provisions as they talk tax reform and deficit reduction. But they also say that those discussions are still in fairly early stages, and that nonprofit advocates shouldn’t necessarily assume that their deduction is close to getting chopped.

“I don’t want people to be scared as we talk about this,” a House GOP aide said. “We’re at the beginning of the process now, and we want to involve interested parties as we move toward tax reform that brings businesses and individuals lower rates.”

Still, a Senate Republican aide said he thought the nonprofit sector’s fears were a bit misplaced.

“Good tax reform would stimulate economic growth, increase incomes and encourage charitable giving, which is the best result for nonprofits,” the aide said. “The status quo is the worst possible situation.”

For their part, advocates stress that they will continue to take their case about the need to encourage charitable giving to Washington officials, with Aviv signaling she expects policymakers to at the very least understand the sector’s perspective.

A coalition of nonprofit groups has already written a letter to the president, asking him to reconsider his proposal and making the case that charities are more crucial in stagnant economic periods.

Some advocates are also trying to distinguish the charitable deduction from other tax breaks that officials might be examining.

(Source: The Hill)