Catholic Leaders Assess Fiscal Cliff Outcome — and Prepare for Next Standoff
With a deal on taxes now in place, the issue of potential spending cuts moves front and center for Catholic institutions.
WASHINGTON — Days after legislators hammered out a short-term deal to avert a fiscal crisis, Capitol Hill is already gearing up for the next round of negotiations to address a ballooning U.S public debt now comprising 73% of the nation’s gross domestic product.
Media coverage leading up to the Jan. 1 deal, which raised a modest $620 billion in fresh revenue and made permanent middle-class tax cuts, showcased the competing policy goals and tense relations between the White House and the House Republican leadership. But Catholic institutions also have quietly lobbied for their own budget priorities, defending programs that aid the most vulnerable and opposing proposals to reduce or end tax deductions for charitable donations.
For the most part, last week’s budget deal offered a reprieve to Church groups, but it will likely be short-lived. After the early March deadline for increasing the government’s borrowing limit, legislators will be under pressure to reduce social-entitlement programs and limit discretionary spending. Democrats have signaled that reducing or closing tax deductions and loopholes, including those for charitable donations, will be on the table.
“Right now, I am not concerned about funding issues,” said Father Larry Snyder, president of Catholic Charities, USA, the national office for 1,700 Catholic Charities agencies and other institutions.
“But we don’t have a good picture for where we will be two months from now. The deal set up five more crises or fights, and we’ll know more after future decisions are made.”
The ongoing battle to reduce the national debt, Father Snyder said, posed a range of challenges for Catholic charities, most of which receive the bulk of their funding from the federal government. While they hope to secure core programs for the needy, they still need backup from charitable donations. But if typical donors simultaneously pay more in taxes, and also lose tax deductions for charitable giving, Catholic social agencies could be hit hard.
“There is a great amount of fear and trepidation from people running programs that have people at their doorstep. They are afraid they will have to scale back, but how do you tell people, ‘We can’t help you anymore?’” said Father Synder.
“Many agencies will have to face these difficult decisions. But we can’t just raise more money — the American people, including Catholics, support organizations like Catholic Charities, but there isn’t a ton of money out there,” he said, a reference to the ongoing impact of the 2008 financial crisis on household income.
“We are entering into a different situation. We are hoping we can continue providing the services,” he said, adding that future hits to individual discretionary spending could also pose problems for Catholic education.
Daughter of Charity Sister Carol Keehan, the influential president and CEO of the Catholic Health Association, a lobby representing 600 Catholic hospitals in the U.S., has already felt the sting of new budgetary realities: The Jan. 1 deal included a $15-billion reduction in federal funds for U.S. hospitals.
Sister Carol told the Register that the cuts in federal reimbursements weren’t entirely unexpected, but she registered concern that additional reductions could affect the standard of care.
Indeed, just as American hospitals prepare to provide care for 30 million more insured patients under the Affordable Care Act, plans must remain flexible, as the hospitals await the outcome of future budget standoffs.
“No one has given us a heads-up, and they can’t. There is intense disagreement in the House. You saw that Speaker [John] Boehner came up with Plan B, and his own members wouldn’t go for it. It’s hard to know what is going to happen,” said Sister Carol.
The Jan. 1 deal approved about $620 billion in new high-income revenues primarily by allowing Bush-era tax cuts to expire for individuals making more than $400,000 and couples making more than $450,000.
Further, a temporary two-year reduction in Social Security payroll taxes was allowed to expire, and thus an estimated 77% of Americans will pay more in taxes this year.
Less than a week after he helped broker the budget deal, the Senate's minority leader, Sen. Mitch McConnell, R-Ky., stressed that the GOP would block efforts to increase taxes without big reductions in spending.
“The tax issue is finished,” McConnell announced on the ABC news program This Week. “Over. Completed. That’s behind us.”
Democrats, meanwhile, are now calling for the reform of the tax code to raise new revenue. McConnell said he would consider such measures only if they were “revenue neutral” — meaning that any additional taxpayer revenues obtained by limiting deductions and closing loopholes must be matched by cuts in overall tax rates.
President Barack Obama, for his part, has said that he is open to increased revenues and spending cuts. However, he has not proposed any spending cuts, and Democrats have generally resisted efforts to reform social entitlements.
With the March deadline for raising the debt ceiling ahead, Democrats have said they will oppose GOP efforts to link negotiations to spending cuts.
“If Congress refuses to give the United States the ability to pay its bills on time, the consequences for the entire global economy could be catastrophic,” President Obama said in a Jan. 6 statement.
“Spending cuts must be balanced with more reforms to our tax code,” the president stressed. “The wealthiest individuals and the biggest corporations shouldn’t be able to take advantage of loopholes and deductions that aren’t available to most Americans.”
Bishops’ Conference Perspective
With so much at stake and so much uncertainty, the leaders of Catholic social agencies, hospitals and schools must stay flexible and vigilant in the weeks or months ahead.
But Kathy Saile, director of the office of Domestic Social Development for the U.S. Conference of Catholic Bishops, warned that any future reductions in non-military discretionary spending in areas like foreign aid or housing subsidies will have a direct impact on the capacity of Catholic agencies to serve the needy.
“Catholic Relief Services and Catholic Charities help care for the poor, but they do it in partnership with the government,” Saile told the Register
She noted that the conference also opposes proposals that reduce or cap the charitable-giving deduction.
In fact, the Jan. 1 deal has already put a lid on tax deductions for charitable giving by big donors.
“High-income Americans with incomes of more than $1 million may lose up to 80% of their itemized deductions for home mortgage payments, health care, state and local taxes — and charities. Cue the local symphony's development office,” warned a Wall Street Journal editorial last week.
Patrick O’Meara, president of O’Meara Ferguson, Whelan and Conway, a consulting film that advises U.S. dioceses on financial matters and manages big capital campaigns for church organizations, told the Register that the Jan. 1 deal would likely prompt wealthy donors to limit their philanthropy. Going forward, he predicted that church institutions with strong community support could weather future limits on tax-deductable charitable giving by Catholics in other income groups.
For now, President Obama has the wind at his back, and many policy experts believe that GOP legislators will ultimate agree to his demand that they lift the debt ceiling without any preconditions.
James Capretta of the Washington-based Ethics and Public Policy Institute acknowledges that the budget deal was a short-term win for Obama. But Capretta stressed that the decision to make middle-class-income tax cuts permanent also constrains the president's ability to block future cuts in spending.
“The Democratic Party has come full circle. They vigorously opposed the Bush tax cuts in 2001 and 2003, and then they bought into the Bush-era tax policy for the vast majority of Americans,” said Capretta, who served as the associate director at the White House Office of Management and Budget from 2001 to 2004.
“The agreement has permanently cemented the middle-class tax cuts, but the Democrats don’t have any plan to pay for ambitious social programs. Some Democrats wanted the tax cuts to expire, but the president campaigned as the champion of the middle class.”
A Silver Lining?
It will be many months before Catholic leaders who run social agencies and hospitals have enough information to finalize their institutions’ budgets. But there may be a silver lining amid the growing anxiety about future spending cuts.
Father Synder suggests, for example, that the budgetary challenges would continue to foster reforms and innovation in programs administered by Catholic social agencies.
“Since 2008-2009, when the fiscal crisis first hit, people have been very serious about finding ways to manage with less resources or access different resources — instead of donations, maybe more volunteer time, for example,” he said. “We encourage folks to look at the work they are doing and ask, ‘Can we do it smarter?’ You might have a program you really like, but how effective is it?”
Added the Catholic Charities USA president, “We are encouraging people who now get assistance to help use the skills they have to become more self-sufficient.”
Joan Frawley Desmond is the Register’s senior editor.