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Deal to avoid 'fiscal cliff' could hurt charities

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Many charities are worried that a deal to avert the "fiscal cliff" could deal a blow to philanthropy if the charitable deduction disappears.

Many contributors would not give without the tax deduction they receive from donating to charitable nonprofits, said the Rev. John Adams, president of So Others Might Eat.

"If the charitable deduction is removed, that will be detrimental to the nonprofit sector in the country. It's simply a reality," said Bill Winston, director of corporate development and communications for Manna Inc., which helps provide affordable housing to low- and moderate-income families.

Knowing that the deductions might disappear could encourage some to give twice as much this year, said David Kass, a finance professor at the University of Maryland. However, the bulk of the impact would likely come next year in the form of a significant drop in gifts.

But even if Congress does not eliminate the deduction for charitable contributions, it could eliminate other deductions, like those for mortgages and health insurance. That would reduce the amount of disposable income individuals have, making it less likely that they can give money to nonprofits, Kass said.

And if taxes are increased for higher earners, that could hurt philanthropy for similar reasons, he added, since higher earners tend to give more.

As Winston said, 80 percent of charitable contributions come from 20 percent of the population.

"Warren Buffett is a classic example," Kass said. - Rachel Baye

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