Pete’s Perspectives: Local Giving & the New Tax Act
Last year was the 100th anniversary of the creation of the income tax charitable deduction. Now that the Tax Cut and Jobs Act of 2017 has been enacted, we are all in for an experiment that will test how important tax incentives like the charitable deduction are to instigating and promoting charitable giving.
The new tax law has a number of signature features that may influence charitable giving. The most prominent of these is the doubling of the standard deduction for taxpayers. This increase to the standard deduction could effectively reduce the number of taxpayers choosing to itemize their deductions, including the income tax deduction for gifts made to charity. In recent years as many as 35 percent of taxpayers chose to itemize because their income tax deductions exceeded the standard deduction. Studies have estimated that the number of taxpayers continuing to itemize their deductions will be significantly reduced as a result of this change, to between five to 10 percent.
So, why is this important to charities? The implication is that, with fewer taxpayers needing to itemize, there will be a broadly reduced incentive to give. Just about every national study that I have seen indicates that the change in tax incentives prompted by this law could reduce charitable giving by somewhere between five to 10 percent. Nationally, that equates to a $12-20 billion reduction in giving to charities.
What are we to do? First, tell the story – we have learned that the more stories we can tell, and the better we tell them, the more people will bond with our mission. Second, make connections – we have dedicated ourselves to broadly engaging with the community and creating confidence in what we do. Third, amplify the message – we will communicate even more about the benefits of what we offer to donors to increase the amount of giving locally.
From my experience over the last 25 years in the philanthropic sector, the charitable deduction doesn’t uniformly cause donors to give, but it definitely has an impact on the size and timing of gifts. As a place-based organization focused on Central New York, I can’t help but wonder what the future will hold for giving here in our community. Ultimately, I hope that these changes in tax law don’t make it harder for local charities to do their work serving the people of Central New York.