Charities fear hit from Trump tax law during holidays

Nonprofits are worried that charitable donations will be down in 2018 compared to past years as a result of President Trump’s tax law as they approach the crucial holiday giving season.

The tax law, enacted late last year, significantly increased the size of the standard deduction. That means fewer people will claim itemized deductions such as that for charitable contributions. 

{mosads}Nonprofits are concerned that the reduction in the number of itemizers will result in a decrease in both the number and size of donations — particularly for smaller nonprofits and charities focused on social services.

“We’re taking it very seriously,” said Lt. Col. Ward Matthews, national community relations and development secretary for The Salvation Army.

Congress sought to boost the size of the standard deduction to help cut taxes for middle-class individuals and simplify their tax-filing process.

The Joint Committee on Taxation, Congress’s tax scorekeeper, estimated in April that the number of tax returns claiming itemized deductions will decrease from about 46.5 million in 2017 to about 18 million in 2018, excluding returns in either year with negative income.

Charities fear that with fewer people receiving a tax benefit for making donations, fewer people will give to nonprofits or that donors will give less money.

Several studies have predicted a drop in donations.

The right-leaning American Enterprise Institute in June estimated a 4 percent decline in giving in 2018, before accounting for economic growth produced by the tax law. The Urban-Brookings Tax Policy Center, whose director is a former Obama administration tax official, estimated last year that the House version of the tax law would have reduced charitable giving by between 4 percent to 6.5 percent in 2018. 

Already, there are some indications that fewer people are donating to charity this year.

The Fundraising Effectiveness Project released a report Tuesday — the Tuesday after Thanksgiving known as “Giving Tuesday” — that found the number of donors in the first three quarters of 2018 is down 4.3 percent compared to the first three quarters of 2017. Total revenue from charitable giving is up 2.6 percent, but that’s primarily because of a significant increase in revenue from gifts of at least $1,000.

“We’re very pleased to see this increase after what was a very slow first half of the year for giving,” Elizabeth Boris, chair of the Growth in Giving Initiative, said in a news release about the report. “However, we are concerned that we are seeing increases essentially from only one group of donors, and that the total number of donors continues to lag.”

Boris added that a number of factors can influence charitable giving, including tax changes, natural disasters and political elections.

Those in the nonprofit sector say it could take time to get a full sense of the impact of the new tax law on giving. It won’t be clear how giving this year compares to giving in 2017 until data is available for the entire year, since people often do much of their charitable giving at the end of the year. Additionally, it will take some time for taxpayers to figure out whether they will itemize deductions under the new tax code.

It’s possible that the GOP tax law may impact giving to some types of nonprofits more than others, because many of the wealthiest taxpayers will continue to itemize their deductions while a greater number of middle- and upper-middle-class taxpayers will stop itemizing. Middle-class donors often give to faith-based and social services organizations.

“It’s fair to say that the charities in the middle class will see a reduction in giving in 2018,” said Steve Taylor, a senior vice president at United Way Worldwide.

Taylor added that there’s been a decline in donors over the past decade that he thinks will be accelerated by the 2017 tax law.

To mitigate any negative impact from the tax law, charities have been stepping up their efforts to engage with potential donors.

Neal Denton, senior vice president of government relations and policy at the YMCA of the USA, said fundraisers are “trying to capture the attention of donors in new and creative ways.”

The nonprofit sector has also been pushing Congress to make a change to the tax code.

Stakeholders are urging Congress to create a “universal charitable deduction” that would allow every taxpayer to claim a deduction for their donations, regardless of whether they itemize. 

Nonprofits had urged lawmakers and the Trump administration to incorporate such a deduction into the tax-cut law as it was being drafted, and they are continuing to make the case for the idea.

“Everyone, and not just the wealthy, should have the opportunity to have an incentive to give back to their local community,” said Tim Delaney, CEO of the National Council of Nonprofits.

There is some interest from lawmakers in creating a universal charitable deduction. In the House, Reps. Mark Walker (R-N.C.) and Chris Smith (R-N.J.) have each introduced bills to create a charitable deduction that could be taken by nonitemizers. The bills also have co-sponsors from both sides of the aisle.

“It is clear to many that a solution is needed that doesn’t leave charities out in the cold,” said Smith, who said he plans to reintroduce his bill again next year.

In the Senate, Sen. James Lankford (R-Okla.), the chairman of the Appropriations subcommittee with jurisdiction over IRS funding, has offered legislation on the topic. Lankford and the top Democrat on the subcommittee, Sen. Christopher Coons (Del.), sent a letter to Treasury Secretary Steven Mnuchin over the summer asking him to provide Congress with data about charitable deductions and giving.

“Congress should explore improvements to the charitable deduction, so that more taxpayers are recognized for their charitable giving, not just the most well-off. But my view is we cannot add to the deficit while doing so,” Coons said in a statement to The Hill.

It will likely be a challenge to get much legislation passed next year under a divided Congress. And a universal charitable deduction would lower federal revenue unless lawmakers can come up with a way to offset it.

But supporters of a universal charitable deduction point out that there is bipartisan support for the idea.

“It’s a win-win not only for the people, but also for these nonprofits and these charitable organizations who operate on razor-thin margins,” Walker told The Hill earlier this month.

“We don’t want those folks to be damaged.”