UPDATED 10/24/18: The Chronicle of Philanthropy just published a piece on a piece on what the new tax code means for 2018 year-end fundraising by Dan Thain, a Creative Director in Washington, D.C. Read an excerpt of Dan’s post here.
Over the past few weeks, Republicans in Congress have been racing to pass a drastic “tax reform” bill before the end of the year. This bill and the process that produced it are horrifying in possibly innumerable ways — from the tax hikes on the lower and middle classes to its impact on the medium-term viability of the ACA, to provisions thrown in at the last minute that suddenly open up the Arctic to drilling — just to name a few standouts. Our clients in the political and advocacy space are working to raise awareness of the bad provisions and, ultimately, trying to stop them.
But we also have many clients in the nonprofit world who are wondering about the likely impact on charitable giving. The bill, known officially as the Tax Cuts and Jobs Act, nearly doubles the standard deduction and eliminates many popular deductions (e.g. state and local taxes, tuition fees), reducing the incentive to itemize — and therefore the incentive to give to charities of all kinds. Meanwhile, the bill’s overall effect would be to exacerbate inequality in income and wealth, which will put pressure on many of them for additional services to fill larger gaps in the American social safety net. And, of course, the kamikaze fiscal approach that Republicans have adopted threatens all areas of government services, leaving the charity sector to pick up the pieces.
Should nonprofits scramble to adapt their year-end small-dollar fundraising?
The tax plan should not be a game-changer for small-dollar donors who by and large weren’t donating for the tax deduction anyway. Nearly 70 percent of the country uses the standard deduction already. The changes to deductions only affect people who would itemize above the current standard deduction but below the new standard deduction in 2018 and beyond. In other words, a married couple that currently has deductions totaling less than $12,600 will continue to take the standard deduction; a married couple that currently has deductions totaling more than $24,000 will continue to itemize.
The changes to deductions do not necessarily need to affect your messaging during year-end fundraising. Looking longer term, we don’t believe telling donors that this is the last year their donation could be deductible is helpful; plus, the amount of uncertainty in our political environment means that these changes could be rolled back in the next couple of years.
However, organizations may want to consider adding a bit of urgency to their appeals by including some language around the impact of the tax bill (in fact, we tested this with a client, and it lifted conversion rate), and how the tax overhaul may play out pretty negatively for the organization long term, but we don’t recommend getting into the details around individuals’ deductions.
Many of your donors contribute because they believe in your cause, not because they want something in return. For those donors who do care about their gift being deductible, nothing is changing in 2017 — and even with the forthcoming changes, many donors will continue to itemize anyway. Don’t complicate your communications in the hopes of boosting results in the short term; focus your messaging on the impact your organization makes and the fact that donors can make tax-deductible contributions to your cause.
On the other hand, these changes do have larger implications for your strategies around bequests and major gifts; some studies conclude that repealing the estate tax will reduce charitable bequests by nearly 40 percent. This year might be a good time to reach out to those donors and encourage them to do more in the face of these changes or to restructure their planned gifts.
What does this mean for charitable giving overall?
As mentioned above, this bill does, in fact, make life harder for charities. It is, on its face, a transfer of wealth from the poor to the rich — it will accelerate (our already sickening) inequality in income and wealth.
Unsurprisingly, now that they’ve passed a bill giving away a trillion dollars to the rich off the backs of the poor, Republicans have suddenly re-found their debt hawkishness and will use this as an excuse to gut Medicare, Medicaid, and Social Security next year.
So what’s the prognosis? Is this the end of charitable giving in America?
First, this bill is not quite a done deal! It still needs to pass reconciliation before making its way to Trump’s desk. Second, don’t panic. Despite this setback, charitable giving will remain a cornerstone of modern American life, and it’s not going anywhere.