The fiscal cliff agreement passed late last night extends some much-needed benefits and tax breaks, but looming spending cuts leave minority and poverty-stricken communities in limbo.
Leaders in the nonprofit community praised the bill’s handling of some aspects like the charitable-giving tax deduction. But in other areas, they said they felt it failed to support them, and by extension, left poverty-stricken Americans who depend on their services in a state of flux.
Though it would have put billions of dollars back in the budget, Congress voted this week to keep the charitable deduction with one change: The deal brings back a limit on how much taxpayers can deduct.
The Limitation on Itemized Deductions, commonly called Pease after the congressman who created it, was part of the 1986 tax reforms and reduced deductions made by high-income earners. Yesterday’s deal defines that threshold as those making $300,000 or more for couples and $250,000 for unmarried individuals.
But Tim Delaney, president and CEO of the National Council of Nonprofits, called the amount it shaves off wealthy American’s itemized deductions nothing more than “a haircut.”
“On the whole nonprofits, for the time being, are looking at [keeping the charitable deduction despite the cap] as a disaster averted, because there were proposals to substantially take away charitable giving,” Delaney said.
Maya Wiley, president of the Center for Social Inclusion (an advocacy group focusing on eliminating social inequalities), said the extension of the earned income tax credit was especially important for African American households, whose real median income had not recovered to pre-recession levels at the beginning of 2012, according to the Census Bureau.
She also praised Congress for extending unemployment benefits.
The unemployment rate for black Americans in November was 13.2 percent, 5.5 points higher than the national average and 6.4 percent more than among whites.
But overall, Wiley called the deal “a fiscal fiasco” for its failure to address spending cuts that would mean a steep drop in discretionary spending.
Title I, a Department of Education initiative aimed at improving academic achievement in disadvantaged communities, is an example of a program that would face cuts under the sequester, according to Wiley.
Said Wiley, “1.6 million kids will lose funding just from Title I alone.” Of that 1.6 million, Wiley said 1 million are black and Latino. “We haven’t had a sufficient conversation about who really is going to get hurt by that.”
Like a sword of Damocles, these prescribed cuts hang over the heads of charities and NGOs, keeping the nonprofits in a state of instability, not knowing if the local governments who hire them to serve their neediest residents will have the funding necessary to pay for their work two months down the road, according to Delaney.
The members of Congress who voted to put the cuts off until March “seem disconnected with the real work that’s going on in their home states and their districts,” Delaney said.
“The key is for them to recognize how their failure to act has created a dark cloud over the ability of community-based nonprofits to function, that the uncertainty of whether funds will flow to the states and to the local governments to meet their needs is causing consternation and freezing the ability of people to make informed decisions out in the field,” DeLaney told ABC News by phone Wednesday.
But Fergus Hodgson, director of fiscal policy studies at the John Locke Foundation (a free-market think tank based in North Carolina), said the struggles experienced by nonprofits is “such a small drop in the ocean,” in comparison with what he sees as the real problem at hand: reforming programs like Social Security and Medicare to curb the nation’s growing debt.
“It’s about reforming our future obligations or addressing them,” Hodgson said. “There was absolutely no change to those forms of entitlements, and as we speak those entitlements or the deficits associated with them are just continuing on all the time.”
JD Foster, a tax economist at the conservative Heritage Foundation, blamed President Obama for the lack of entitlement reform in the final bill.
“We had an opportunity to cut spending,” Foster said. “And the president said no.”
There was one thing actors on both sides agreed on: The deal left the country in a state of uncertainty instead of putting Americans’ fears to rest.