Dire Predictions That Tax Reform Will Depress Giving Appear to be Wrong—At Least So Far

Sergey Nivens/shutterstock

Sergey Nivens/shutterstock

Despite dire predictions that the tax reforms of 2017 would depress charitable giving in 2018—especially among middle-income Americans—charities that rely on such donors saw contributions rise by very healthy margins in last year’s final quarter.

With the gains, most charities increased the amount they raised last year over 2017, according to Inside Philanthropy interviews with more than two dozen experts who track giving to large numbers of nonprofits, local United Ways, and other charities nationwide. While not scientific, IP’s spot check mirrors the findings of other, larger surveys.

“We have seen increases in donors as well as corporate [gifts],” says Brittany Myrick, director of development at the United Way of Androscoggin County in Lewiston, Maine, where donations last year were about $200,000 higher, reaching $1.4 million. “We were concerned about the effects of the new tax law, but from what I have seen, it hasn’t had an effect.”

“We have not seen a decline in giving,” says Joel Powell, president of the local United Way in Sioux Falls, South Dakota. “We are up 2 percent,” he said, in employee and corporate contributions.

“All the individual one-time givers who gave last year gave again in 2018 at the same amounts,” says Doug Rowand, president of the Arrowhead United Way in San Bernardino, California, which raised about $1 million last year. “We haven’t been affected by tax reform.”

Such results run counter to United Way estimates that the 2017 tax changes would depress giving by $256 million to $455 million per year.

Academic experts at the Indiana University Lilly Family School of Philanthropy projected that the 2017 tax changes would depress giving by some $20 billion annually from donors in 2018 and beyond, out of the more than $300 billion that Americans gave to charities in 2017.

Giving will go down, they say, because the 2017 law doubled the standard tax deduction. That means fewer Americans will be motivated to itemize their charitable gifts in order to get a tax break as they did in years past. The higher standard deduction, the thinking goes, will make such itemizing unnecessary.

That’s a big concern for nonprofits: Research has found that a significantly higher percentage of people who itemize tend to support charities than those who don’t. With only the wealthiest Americans now able to itemize, when their big donations exceed the new standard deduction, charitable giving should certainly decline.

But it hasn’t—at least not yet. And United Ways aren’t the only organizations reporting that they met or exceeded their fundraising goals last year.

“We had an excellent campaign in 2018, the best of my tenure,” says Marty Haberer, chief executive of Arizona’s Jewish Federation of Greater Phoenix, describing his fourth fundraising drive. “We broke $5.2 million,” up from $4.4 million in 2017, says Haberer. “There is no evidence the tax law changed anything.”

The Santa Fe Community Foundation had a 15 percent increase in contributions in 2018, raising $8 million.

At the Delaware Community Foundation, in Wilmington, donations last year surged to more than $30 million last year, up from $24 million in 2017.

Joan Hogue Norris, the Delaware foundation’s vice president of philanthropy, says one factor was an uptick in donors over 70 years old. They’re taking advantage of a law allowing them to make tax-free donations from their individual retirement accounts, using IRA money that would otherwise be taxed if they made the mandatory personal withdrawals required at their age. As the huge baby boom population ages, experts say, such IRA gifts will become more common.

Last year’s increased contributions are in line with quarterly research showing that after a slow start in 2018, charitable giving started rebounding in the third quarter. An analysis by the Nonprofit Research Collaborative found that beginning in last year’s third quarter, 75 percent of charities—the highest percentage since the quarterly reports were created in 2010—said they were meeting their fundraising goals. 

Similarly, the Fundraising Effectiveness Project’s quarterly analysis of contributions to more than 17,000 charities found that third-quarter contributions, at nearly 67 percent of donations for the entire year, was the highest third quarter over the last five years.

Last year’s rise in donations can be attributed to a resilient economy that remained strong, even with the stock market declines of December, says Barlow Mann, chief operating officer at the Sharpe Group, a Memphis consulting company that advises charities on giving and fundraising. The company’s surveys of a few hundred client organizations showed that early fourth-quarter giving was “really good,” Mann says.

“Some clients had an outstanding 2018,” he adds, citing one large national health organization that had a banner year with gains in all types of gifts, from modest contributions to estate gifts.

“The impact of low unemployment, rising income, and tax cuts appear to have offset any effect from tax reform as far as charitable giving goes,” says Mann. “Overall, the economy trumped the negative impact of the tax bill.”

Another reason charities didn’t see tax law effects last year: It’s not yet clear to many Americans, who have until April 15 to file their 2018 taxes, how tax reforms will affect them personally. Giving could be negatively affected at the end of this year, as people adjust to new tax conditions. Another wild card: Many Americans in states like New York and California now face significantly higher state and local tax bills, which could prompt them to reduce contributions in 2019 and beyond.   

There are already some signs that 2019 could be a challenging fundraising year. A sharp decline in the stock market in the fourth quarter of last year caused some donors to give less and many analysts expect ongoing volatility in the market after years of steady gains. Many are also predicting an economic slowdown this year following the longest period of expansion in U.S. history—another development that could lead to a falloff in charitable donations.

Meanwhile, the government shutdown is having negative effects on giving. The Combined Federal Campaign for government employees who opt to have money withheld from their paychecks is now in its busiest time, running through January every year. But at least six key people who administer the campaign at the U.S. Office of Personnel Management have all been furloughed.

And as the government shutdown continues, it’s not clear how missing donations from thousands of federal employees, who can cancel their pledges at any time, will fare—if and when they receive back pay. Perhaps because so many government officials are out of work, the Office of Personnel Management did not respond to multiple requests for information about the fundraising drive.

The partial shutdown is also increasing demands that other charities may be hard pressed to meet by stepping up their fundraising efforts.

For example, Catholic Community Services of Northern Utah, in Ogden, decided to waive its low-income requirements and open its food pantry this month to out-of-work federal workers, most of whom work in local offices of the Internal Revenue Service or the U.S. Forest Service.

Many furloughed government employees lack cash reserves and have dependents to support, says Maresha Bosgieter, director of the Catholic agency. Because “many of these families don’t earn high salaries and live paycheck to paycheck,” she says, they can come to the pantry twice each month while the shutdown lasts.

In addition to the 100 needy families the pantry typically serves in a given week, 50 furloughed federal workers required to present a pre-shutdown pay stub or government identification shopped for free food at the panty in the first week of January. By the second week of the month, that number exploded: Now 50 to 60 furloughed employees are coming in daily for their two-week food supply.

Regardless of what happens in 2019, last year’s giving gains follow a welcome spike in 2017 contributions to many community foundations and other organizations that offer donor-advised funds.

At the Parkersburg Area Community Foundation in West Virginia, Executive Director Judy Sjostedt says many area financial advisors recommended that their clients bump up contributions to donor-advised funds in 2017 to take advantage of tax breaks that might lessen or disappear under the new law.

But even as they reported overall giving was up last year, some charities did experience a dip in gifts of stock, as the financial markets fell in December.

Christy Eckoff, a managing director at the Community Foundation of Greater Atlanta, says that 2018 contributions increased slightly, though some donors held off on adding to their charitable accounts with donated stock.

 “Not as many donors were adding to their funds,” she says, “but those who did added substantially.”

 Sydney Petty contributed to this article.