Fundraisers have worried that the Tax Cuts and Jobs Act would dramatically lower giving. With the first filing season closed since it took effect, anecdotal evidence suggests donors may not give or change the intervals of their gifts.
Ever since the Tax Cuts and Jobs Act (TCJA) was passed by Congress in December 2017, the fundraising community has been concerned that its changes would stunt donations. The first filing season covered by the law closed on Monday, and donors have started to notice the changes.
“I think there is a lot going on in how donors are reacting,” said Patrick Rooney, executive associate dean for academic programs at the Indiana University Lilly Family School of Philanthropy. The school studies donor habits and has been particularly interested in how tax changes affect giving.
The part of TCJA that most affects givers is that the standard deduction was nearly doubled. This moves a significant number of people from itemizing their taxes to taking the standard deduction, meaning they can’t write off individual gifts to nonprofits.
The impact of changes like this are historically clear, said Rooney, who pointed to a longitudinal study that has followed the same households since 1968. “We can see over time how individuals who were itemizers one year and then become nonitemizers change their behavior,” Rooney said. “That itemization status makes a difference for many households. Some people reduce their giving, and some don’t give at all.”
Rooney said in years past itemizers have made up about 30 percent of filers. “This year and forward, it’s estimated as low as 5 percent, or as high as 10 percent, will be itemizers,” he said.
The silver lining for nonprofits is that donors who weren’t itemizing their taxes are unlikely to change their giving patterns for tax reasons. “I think the real action is the middle two thirds,” Rooney said. “The people who never itemize are not going to be affected. At the very highest end, those households are still itemizing.”
Spreading Out Donations
What are donors hit by the tax change doing? Well, they are thinking strategically about giving. “If you’re a donor, you bundle your gifts through a donor year,” Rooney said. “You might tell them, ‘I will give you one gift for every two or three years.’”
As an example, Rooney said a person who normally gives $12,000 per year might instead give $24,000 in the current year so she can itemize and give nothing the following year, expecting the nonprofit to use the gift over two years. “It makes budgeting and planning tougher,” Rooney noted
While giving at uneven intervals makes planning hard, it is still giving; there will be donors who can’t afford that. “[They] may say, ‘I’m on this razor-thin budget balancing edge, and I need to balance my budget,” Rooney said. “Before, I had this tax deduction. Now, I have to give less to be on a balanced budget.”
Because of this, many nonprofits are already talking to their donors. “I think they are being more cognizant and trying to have conversations with their major donors, electronically and in person, about their mission and the need for fundraising, but at the same time recognizing that they can’t reach all the donors that may be affected by this,” Rooney said.
With tax season just closing and some people only now realizing they didn’t get their write-off, their reactions and plans for future giving are just beginning to codify in their minds. Nonprofits will have to wait a couple of months to get a handle on what those giving plans will be. “The very first report that we will have that will take into account the impacts of the tax bill will be from Giving USA, and that will come out June 18,” Rooney said.
While reduced giving spurred by tax changes can feel disheartening, Rooney said it is important to remember that giving is guided by a desire to help, not taxes. “People don’t give just because of the deduction, no matter what they say,” Rooney said. “If you only cared about your after-tax income, you would never give a nickel. You’re always worse off by making a contribution. You have to care about the charity to give at all, and sometimes that gets lost in the equation.”