Tuesday, April 24, 2018

New Tax Laws - Implications for Nonprofits?

April 15th has come and gone. I hope you filed your taxes, and of course, I hope that all of us received an above average refund. (I couldn’t resist making a quip that would bring a smile to researchers.)

With 2018, we have a very new tax situation in the United States. The “Tax Cuts and Jobs Act” has produced changes that Time Magazine called the “largest overhaul of the U.S. tax code since the Ronald Reagan era.” Among its provisions, it increases the incentive to take the standard deduction, rather than to itemize deductions, such as donations to charity. Some nonprofit leaders have expressed concern, and research might make those leaders wary. The highly respected Lilly School, for example, suggested that a potential national decline in giving could total as high as $13.1 billion. The Tax Policy Center asserts that the decline could go even higher, to perhaps $20 billion.

Will the new tax laws help or hurt nonprofit efforts and our work to benefit communities? The prediction that someone makes will depend on their assumptions about why people give money to eleemosynary institutions. Do donors contribute because they can reduce their taxes? Or do donors contribute because they want to support a mission, to further a cause, or to support something worthwhile in their community?

You might ask yourself: Why do you donate? If the amount of taxes you pay will change as a result of a change in tax laws, will you adjust the amount you donate to charity?

The argument that the latest tax act will reduce contributions to nonprofit organizations builds on the premise that the opportunity to deduct charitable contributions on a tax return constitutes a significant, if not primary, motivation to donate financially to charitable organizations. By implication, the less effect that donating money has on reducing taxes, the less that people will give financially to charity.

About 40 years ago, my father told me that he believed that the above premise makes little sense. As Dad pointed out, if someone has a major obsession about holding on to their wealth, that person should not donate at all. If someone donates $100 to charity and saves $30 on taxes, they have still parted with $70. Better to just pay the tax and retain the $70.

Evidence suggests that some donors factor tax deductions into their final decisions about charitable gifts. The loss of the opportunity to take a tax deduction might result, in 2018, in fewer or smaller charitable donations. However, when push comes to shove, will most donors give more weight to the mission they want to support, or to the tax benefit they no longer receive for donating?

Further informing this topic, aggregate data show that nationally about 74% of taxpayers do not itemize their deductions on their tax returns. These people already receive no direct tax benefit from making a charitable donation. Beginning in 2018, the standard deduction increases to $24,000. This will reduce the number of people who itemize their deductions, thus reducing the number of people for whom a charitable contribution results in a lessening of taxes. Nationally, the Tax Policy Center expects the percent of non-itemizers to rise by 15 percentage points from 74% to 89%.

If those 15% of taxpayers have tax savings on their mind, and have no strong allegiance to charity, then donations to charity might decrease. However, if other factors influence their decision to donate to charitable organizations, then the new tax laws will have weak or no effects.

History can inform us as well. Many nonprofits feared that the 1986 tax act would lead to a major decline in donations to charity. That major decline did not occur.

Something else to keep in mind: A dollar “given” to Uncle Sam does not serve a completely different purpose from a dollar given to charity. The National Priorities Project at the Institute for Policy Studies (which has a “progressive” bent) shows that, of the money we taxpayers paid in 2017, close to 30% went toward health; 7% went to unemployment and labor; 4% went to education. (Of course, 24% went to the military which, albeit necessary to maintain, certainly does not exist as part of the charitable, nonprofit sector.)

Federal spending has significant effects on our communities’ well-being – think jobs and nutrition, for example. The more that we can inspire and align the work of government and the work of nonprofits, the better.

So, what’s my prediction? Probably that most people will continue to give as they have in the past. Maybe that’s my optimistic side and my faith in humanity. Tracking the effects of the tax act becomes complex because some evidence suggests that a slight decline in charitable giving might have begun during the 21st century, well before the new tax act. Additionally, changes in the economy, positive or negative, will influence giving trends. So, perhaps we will never definitively know the effects of “TCJA” upon charitable giving.

In any case, I’m fulfilled by carrying out my legal obligations as a taxpayer, just as I am fulfilled by carrying out my moral obligations as a donor. One way or another, we need to fulfill our duty to care for each other.

Wednesday, April 04, 2018

50 Years Since Dr. King's Assassination

I recall hearing about the assassination of Dr. Martin Luther King, Jr. on the evening of April 4, 1968. In part, the news seemed shocking. Sadly, it also seemed like the next step in an inexorable series of 1960s killings including John F. Kennedy, civil rights workers, Malcolm X (assassinated just a couple of miles from where I attended school), and others. Rather than deter or stifle us, however, Dr. King’s murder motivated us all the more to advocate for just policies and just treatment of all people; it led many of us into careers in organizations where we could try to improve our communities and the world.

Would Dr. King feel that we had succeeded or failed during the past half century? Probably a mix. We have passed legislation to address some of the blatant problems of discrimination; we’ve reduced redlining and other institutional practices that directly limited access by people of color to home ownership and other resources, and which indirectly contributed to education and health care issues. Life expectancy differences between blacks and whites have narrowed; access to higher education has increased for people of color, along with degree completion. However, significant racial disparities remain in education, housing, employment, and heath. We definitely have not yet achieved the dream.

Racial disparities in the United States and other nations constitute not just an ethical failure. They threaten to undermine our ability to sustain democracy and make progress as a global human family.

As Dr. King stated (in one of my favorite quotes from his speeches): “In a real sense, all life is inter-related. All men are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly, affects all indirectly.” We must keep that principle in mind, as we address local issues of education, housing, and health care, global issues of peace, migration, and economic development, and everything in between.

This is a day to renew our commitment to carrying the torch Dr. King lit.