February 19, 2019
How Mass. Nonprofits Could Be Affected by Proposed U.S. Tax Law

November 4, 2017 — The state's nonprofit trade association yesterday said the Tax Cuts and Jobs Act, unveiled this week in the U.S. House of Representatives, will diminish charitable giving, but a study released earlier this year suggests that reducing the deductibility of charitable contributions from individual income federal tax returns may not be as dire as some believe.

The legislation proposes doubling the standard deduction and phasing out the estate tax, which the Massachusetts Nonprofit Network (MNN) and others say would reduce charitable giving.

The reasoning is that more people would take the standard deduction instead of itemizing deductions from their income when computing their federal tax, which presumably reduces their incentive to give to charity. MNN said the proposed legislation would increase the share of federal taxpayers who do not itemize tax deductions from about 70% to 95%.

And the incentive to donate to charity among those who inherit large estates would be weakened since there would be no need to reduce estate taxes that no longer exist.

But that assumes people donate to charity in order to reduce their tax obligations.

While a national study of 1,000 American charitable donors earlier this year found that very few people want to see the charitable tax deduction completely eliminated, many are open to some limits on deductions.

The Donor Mindset Study, conducted jointly earlier this year by Opinions 4 Good and Grey Matter Research, founds that:
  • Only half of all donors believed charitable deductions should be fully tax deductible for those who itemize.

  • One-third believed there should be limits, almost equally divided between those who felt contributions should be deductible up to a certain amount and those who felt the limit should be for certain income levels.

  • Only 10% wanted the charitable deduction eliminated, while 7% were uncertain.
Eighteen percent of survey respondents felt that if the charitable deduction were completely eliminated, which is not on the table, giving would actually increase, a view held almost exclusively by donors under age 50, and particularly by donors under the age of 35.

Ron Sellers, president of Grey Matter Research, noted that these findings fly in the face of what many nonprofits believe: “There is widespread concern in the industry that reducing or eliminating the charitable deduction will have a chilling effect on giving. The surge in the proportion of donors who think giving will actually increase may surprise many.”

According to Grey Matter, the proportion who believe cutting the charitable deduction will result in increased giving by Americans has tripled in the past five years, from 6% to 18% of all donors. The proportion who believe their own giving will rise if contributions are no longer tax deductible has more than quadrupled, from 5% to 22%.

It is generally held that 80% of philanthropic dollars come from 33% of taxpayers, but the exact amount contributed to charity by non-itemizers is not tracked.

If the Tax Cuts and Jobs Act becomes law, federal taxes would be reduced, to varying degrees, for nearly all taxpayers. Some people may use that additional income to increase their charitable giving, especially if government support for social services wanes.

The tax bill also proposes a 1.4% percent excise tax on private college and university investment income at institutions that have at least 500 students and assets of at least $100,000 per student, and a 20% tax on compensation of more than $1 million paid to nonprofits’ five highest paid employees. The tax would also apply to so-called “parachute payments,” or money paid out when top nonprofit executives or college presidents leave an institution.

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