How The GOP’s Proposed Tax Plan Will Hurt Nonprofit Giving

Last week, the Republican controlled congress released details on proposed changes to the US tax code that would usher in sweeping changes, most of which are not good news for nonprofits. Here’s a breakdown of what you need to keep an eye on.

Charitable Deduction Limits Plus Added Complexity

Adaptistration People 123The Republican’s bill is perhaps best described as giving with one hand while taking away with several others.

On one hand the bill would increase the share of income taxpayers can write off via charitable deductions by increasing the cap from 50 to 60 percent of adjusted gross income. On the surface, that sounds good until you realize it’s marginalized by a provision making the deduction usable only by those who itemize their deductions.

Moreover, other provisions in the tax bill are designed to deliberately discourage taxpayers from doing exactly that via a higher standardized deduction. As a result, those individuals receive zero benefit from charitable deductions.

If that weren’t enough, the added layers of complexity for taxpayers determining if itemizing or taking the standard deduction is best for marginalizing their tax liability means most will likely opt for the path of least resistance.

In the bill’s current form, the cumulative negative impact on giving is estimated in the $13 to $14 billion range.

Eliminating The One-Percenter Giving Cap

The Republican’s bill proposes eliminating the cap mega-wealthy taxpayers receive for charitable deductions.

Once again, on the surface this sounds good with the rationale that allowing one-percenters to deduct 100 percent of charitable donations will help encourage increased giving. The reality is taxpayers in the one-percent tier neither tighten nor loosen their purse strings based on changes to the US tax code.

Since the economic downturn, the amount of wealth concentrated among the mega-wealthy increased but those benefits have not been matched by similar increases to charitable giving. Consequently, there’s no evidence to support the added tax benefit will have any positive impact on a nonprofit’s contributed revenue.

Next Steps

Every analysis of the proposed tax bill indicates charitable giving will decrease.

In response, every nonprofit should use their resources connections to legally support efforts that pressure lawmakers away from these provisions and instead, adopt policies that encourage and reward charitable giving across all income levels equally.

One of the most effective methods is to shift from using charitable donations as deductions to tax credits, which provide a 1:1 reduction in tax liability.

It’s easier for all taxpayers to use (it can even fit on the Republican’s proposed tax filing postcard), underscores the vital role individual giving has on the US nonprofit charitable system, and can be easily managed by Congress to avoid abuses.

About Drew McManus

"I hear that every time you show up to work with an orchestra, people get fired." Those were the first words out of an executive's mouth after her board chair introduced us. That executive is now a dear colleague and friend but the day that consulting contract began with her orchestra, she was convinced I was a hatchet-man brought in by the board to clean house.

I understand where the trepidation comes from as a great deal of my consulting and technology provider work for arts organizations involves due diligence, separating fact from fiction, interpreting spin, as well as performance review and oversight. So yes, sometimes that work results in one or two individuals "aggressively embracing career change" but far more often than not, it reinforces and clarifies exactly what works and why.

In short, it doesn't matter if you know where all the bodies are buried if you can't keep your own clients out of the ground, and I'm fortunate enough to say that for more than 15 years, I've done exactly that for groups of all budget size from Qatar to Kathmandu.

For fun, I write a daily blog about the orchestra business, provide a platform for arts insiders to speak their mind, keep track of what people in this business get paid, help write a satirical cartoon about orchestra life, hack the arts, and love a good coffee drink.

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