With the passage of the recent federal tax bill, U.S. charities large and small are worried that donations will decline because most taxpayers will not receive a tax write-off. The legislation nearly doubles the standard deduction, up to $12,000 for individuals and $24,000 for married couples, resulting in many taxpayers finding it no longer beneficial for them to itemize deductions and prioritize charitable giving.
“The Washington D.C.-based National Tax Policy Center estimates that charitable giving nationally will decline by between $12 billion and $20 billion in 2018, or between 4% and 6.5% as a result in of the increase in the standard deduction and the decrease in the number of taxpayers who itemize their federal taxes,” reducing the number of tax filers who itemize from 40 million to 9 million, estimated to be nearly two thirds of the American taxpayers who provide small donations to a wide spectrum of charitable causes.
The United Way recently shared that many "charities are in shock. Charities feel totally blindsided and like we have been thrown under the bus." Coupled with declining federal programs, subsidies, services, and grants, the tax bill puts charities and nonprofits in a challenging position. The Great Recession’s economic recovery has largely left underserved and vulnerable populations behind, increasing community needs which will need to be met by increasing the burden on nonprofits, since government is divesting itself of that burden. If individual giving plummets as anticipated, the gap between what government provides, what nonprofits are able to muster, and what is needed to accomplish the work to be done suggest funders with means must become a more significant part of the equation.
Charley Ballard, an economics professor at Michigan State University, states “the average taxpayer who itemizes in 2017, but won’t in 2018, will see a substantial increase in the net price of giving.”1 Predictions are that charitable giving will decline by $14 billion in 2018, down 5 percent from individual giving in 2016. With the trend of government reduction in programs and services, and lessening grant funding to the nonprofits providing those services, there is a faulty assumption made by government and society – that the nonprofit sector will fill this void. But to fill the void, the financial gap must be bridged, which leads charities to become more dependent on charitable giving, an unlikely scenario for the majority of the country’s nonprofits.
The Indiana University Lilly Family School of Philanthropy’s recently released report, The Philanthropy Outlook 2018 & 2019, provides a nuanced view of the directional changes in charitable giving in the U.S, pairing three macroeconomic conditions (high economic growth, uneven growth, and flat-growth) with the effects of the new tax legislation. Under all three scenarios, the impact of the new bill on individual charitable giving is negative, positing that the modest reduction in the tax marginal rate will not offset the reduction of tax incentives by non-itemizers. The report also includes a detailed discussion of specific tax policy changes and of economic factors expected to affect giving, providing some of the contextual data needed by donors, charities, and lawmakers to help them plan for the future of philanthropy.
The report's high-growth scenario projects that strong growth in personal income, net worth, and consumption will help offset the dampening effect on individual giving, while corporate and foundation giving will remain strong. Under the uneven-growth scenario, the report estimates that giving by high-net-worth individuals and households will continue to grow, while giving by the less wealthy may fall and corporate giving could go either way. Under the flat-growth scenario, confusion over the rescinding of certain deductions could further dampen individual giving. Overall, the report finds that the broad implications for charitable giving are difficult to ascertain.
"Some aspects of the new tax policies may have a dampening effect on charitable contributions. Conversely, overall improvements in the economic environment will likely bolster charitable giving," said Una Osili, associate dean for research and international programs at the Lilly Family School of Philanthropy. "While we cannot know exactly how the impact of these factors will play out for philanthropy, we present these multiple research-based scenarios, and the factors that are likely to have significant effects on giving, for users of the Philanthropy Outlook to consider."
Philippe G. Hills, President and CEO of Marts & Lundy, whose firm partnered with the Lilly Family School of Philanthropy on the report, indicated “the predicted decline in individual giving as a result of tax policy changes is likely to primarily impact organizations middle-income Americans support, such as local charities, congregations, and basic needs organizations. These charities could be affected more than large arts organizations and educational institutions that have the resources to more fully engage wealthy donors.”
The downward trend in government funding and services, coupled with the landscape changes wrought in philanthropic giving by the restructuring of corporate giving strategies over the last several years, suggests the loss of tax code incentives will negatively impact the many Americans depending on charitable organizations. Every agency industry, from food banks to medical emergencies, pre-natal care for low-income mothers to seniors with dementia, is evaluating community needs against available funding, seeking new funders who are committed to making a difference. Some corporations are already pledging to increase charitable giving, such as Wells Fargo, which plans to increase its giving 40% to $400 million.
Valerie Brown is a Nonprofit Consultant and Grant Writer who has worked in the nonprofit field for over thirty years, in the fields of violence against women, economic development, youth and child development, housing redevelopment, disaster recovery, and social services. She is currently employed by Interfaith Community Services as their Grant Manager and Contract Administrator.
Ms. Brown currently serves on the City of San Diego’s Consolidated Plan Advisory Board and also volunteers with several nonprofits, utilizing her extensive nonprofit expertise on issues focused on community collaboration, preparedness, youth, and especially senior and dementia issues. She is the secretary of the Grant Professionals Association (San Diego Chapter); president of the San Diego Chapter of the National Aging In Place Council; secretary of the San Diego County VOAD Chapter; and is a board member of the Community Recovery Team; 4Community Solutions; and Palomar Council PTA.
Ms. Brown holds a Bachelor of Arts degree in English and History from Duke University and certificate in Nonprofit Management from Brandman University and the Sanford Institute of Philanthropy’s Fundraising Academy from National University. You can reach her at www.got2bjolley.com.
 Gray, Kathleen, Detroit Free Press Lansing Bureau, Jan. 8, 2018
 “Charitable Giving to Rise – and Fall – After Passage of Tax Bill”, Philanthropynewsdigest.org