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Tax Reform and Philanthropy – a Caution

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Whatever you think about tax reform, I urge you to consider the impact on philanthropy, our nonprofit organizations, and our civic sector as a whole.

As we all know, this week’s broadly outlined tax proposals may change completely by next week. Even so, reform discussions have been floating around long enough behind the scenes to raise serious concerns.

The charitable deduction has become a structural underpinning for the nation’s nonprofit sector. People give for many reasons – for the joy it brings them, because it’s “the right thing to do,” because they are moved by issues and challenges, because they are asked by friends. But let’s face it. Giving is not purely altruistic. In their October 2016 study on high net worth giving, U.S. Trust and Indiana University report that 70% of donors say their giving is always or sometimes motivated by getting a tax benefit.

To be clear, elected officials across the political spectrum have overwhelmingly expressed their goal not to reduce charitable giving. And yet, here’s Dan Cadinali, CEO of Independent Sector, in a statement from the Chronicle of Philanthropy: “Doubling the standard deduction and keeping the charitable deduction in its current form would lead to a $13 billion reduction in giving each year.”

Finally, the current tax reform ideas include elimination of the estate tax. The last time the estate tax was eliminated – in the year 2010 – charitable bequests were reduced from $11.9 billion to $7.5 billion – a 39% reduction. In 2011, when the estate tax came back, charitable bequests increased to $14.3 billion – almost a doubling in one year!

This matters.

The charitable tax deduction affects the level of support available in the aftermath of the recent hurricanes and earthquakes, the day-to-day support of human services and arts organizations, to environmental organizations, and to so much more.

Eliminating or reducing the charitable tax deduction would dramatically reduce the money available for the sustainability of our social structure, potentially for generations.

To be sure, this doesn’t mean tax reform is inherently a bad idea. There are good reasons for these considerations. And there are other ideas – not currently being discussed – that would not harm charitable giving. But these ideas? Not so much.

We are watching this closely, and working in partnership with fellow community foundations, the Council on Foundations, and other colleagues in state. We will keep you posted, and would love to hear your perspective, too.