Currently there is no shortage of demand for services at nonprofit human service agencies. Record numbers of people attend local food pantries and soup kitchens each week in my neighboring city of Lawrence. Anecdotal evidence suggests similar demand exists at other agencies in other locations.
Unfortunately, I fear that the damage that these agencies in the current economic and fiscal environment will face is two-fold. First, by an increase in demand for their services. Secondly, from pressure on the sources of funding that they receive.
For those organizations that depend on funding from government sources, so-called “entitlement” programs are under severe pressure at all levels of government. This not only affects individual recipients of aid, but also affects the organizations that these individuals depend upon during difficult times.
Most nonprofit human service organizations depend at least partially on charitable contributions from individuals who believe in and are willing to support them in their mission. Some organizations depend entirely on the generosity of individuals. The higher tax rates recently passed by President Obama and both houses of Congress simply reduce the disposable dollars of all Americans who file a tax return — there is just less disposable income and, as a result, less money to go to charity. All taxpayers will pay more in taxes in 2013 than in 2012. This not only affects those who give, but also affects the low-income earners who become the beneficiaries of these agencies. Everyone has less money in their paycheck.
A study published in October 2011 by the Center on Philanthropy at Indiana University notes that “high-earning households are disproportionately responsible for individual charitable gifts when compared to other taxpayers, and federal tax policy impacts the giving habits of these households.” A reduction of the disposable income of higher income households could impact charitable giving, leading to some decline in the amount given. Furthermore, the recent tax changes limit the value of all deductions — charitable, mortgage, state and local taxes — for higher income taxpayers. The aforementioned report suggests that the change could reduce annual giving by $2.4 billion over the next two years.