The fiscal cliff is created by the simultaneous activation of two deficit-busting policies: tax increases and governmental spending deductions. These policies were originally made in 2011 in hopes to cut the United States’ budget deficit in half. A bipartisan compromise that appeased both parties could not be reached, resulting in the scheduled implementation of a policy that neither side likes.
The idea of debt reduction is good, and in fact obligatory, but when it is finally put into practice in 2013, it will create an extreme hit to the country's economy. Some economists believe that another recession could occur. The current debt ceiling is set at $16.4 billion. If these funds are not paid back in full, the U.S. must default on its debt. The fiscal cliff is inevitable unless policies are adjusted before the New Year.
The Fate for Non-Profits
Non-profits will be vulnerable in the environment that the fiscal cliff will create. One of the ways that the policies will reduce the deficit is to put a cap on deductions, not giving individuals, businesses, or charitable foundations the ability to write off an amount that is larger than the cap amount. This cap is expected to be set as low as $15,000, which is much lower than the nation's average last year of $22,000 in write-offs. After paying local and state taxes, as well as mortgage interest, very few funds are left to give to the non-profit world. Capping deductions reduces the incentive for charitable organizations to give to non-profits.
Arbitrary, sequestrian cuts in direct government support will be made to almost every domestic program, regardless of mission or capacity. This will place even more stress on non-profits that already supplement the work of public services:
“The nonpartisan Pew Center on the States explains how sequestration cuts ordered by Congress will – among many other things – slash Head Start ($600 million), disaster-relief (nearly $600 million), child care and development ($187 million), and food for women, infants, and children (WIC program – $543 million). These cuts will, once again, both increase the demands on nonprofits while taking away even more money to handle the added burdens.” - National Council of NonProfits
The lack of governmental funding certainly has a trickle-down effect. State and local legislatures will receive less funds, making them unable to keep their tax rates low. Non-profits already play a large, supplemental role in providing human services to the country where public programs fall short. An ailing non-profit sector can mean higher unemployment and a decrease in quality or quantity of human services.
Policy-makers are working diligently to adjust these policies before the new year comes. Let us hope that this fiscal cliff remains to be a term in the papers rather than our nation's reality.
Greater Pittsburgh Nonprofit Partnership and Council of Nonprofits provided the information for this report.
You can find out more information by visiting www.councilofnonprofits.org.
To find ways that you can take action, visit www.givevoice.org.