Philanthropy & Funding

Beyond the “Will not!” “Will so!” of Tax Reform

Campbell and Co. sponsored a study to determine the impact of increased marginal tax rates and a cap on the charitable-giving deduction on giving.

Kudos to my nonprofit consulting colleagues Campbell and Co. for sponsoring a study by the Indiana University Center on Philanthropy to determine the impact of increased marginal tax rates and a cap on the charitable-giving deduction on giving. While some of us have been arguing that both of these moves toward social justice should be supported by the nonprofit community, and others have been arguing that the world will come to an end if every penny of tax savings isn’t afforded to the generous rich, these institutions decided to look for the facts.

The facts–as elegantly stated in a Congressional Research Service study, which came to the same conclusion–are these (emphasis mine):
The estimated effects of the cap and other elements of the budget package depend on whether the proposals are compared with the current tax rates of 33% and 35% or the rates scheduled for 2011, 36% and 39.6%. Compared with current rules, estimated effects are between one-half a percent and 1% decline in charitable giving….When compared with tax rate provisions in 2011, charitable deductions are estimated to fall by about 1.5% if only the cap is considered, but if income effects from the entire budget package are included contributions actually rise 2.5%. The relatively modest effects of the proposal arise because (1) the effect of caps on the subsidy value is limited, (2) only a fraction (about 16%) of charitable giving is affected, and (3) because evidence suggests that behavioral responses to changes in subsidies are relatively small.

To paraphrase: The tax subsidy isn’t much reduced; that small reduction doesn’t affect 84 percent of charitable giving; and, in fact, charitable giving isn’t all that tied to tax benefit.

So whether we accept the study’s findings that charitable giving is likely to decline modestly if these tax reforms are enacted, or the CRS findings that it might actually go up, we should realize that everyone who’s hyperventilating about the impact of these changes on their poor, struggling private school, museum, or hospital should just take a deep breath. Given that the reforms will support many of the social programs, environmental protections, educational institutions, and health care options the nonprofits themselves seek to provide, it’s about time for the community to stop whining and agree to pony up.

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  • Luke Peterson's avatar

    BY Luke Peterson

    ON October 29, 2011 09:39 AM

    While comforting in the short term - should lightning strike and this legislation pass, that is - this still does not address the broader question of transferring funds from civil society to government.  Regardless of net effects, it is the precedent that scares those of us who believe that, all things being equal, a dollar dedicated to civil society is far better spent than one flushed down the ravenous maw of the federal government.

  • BY Kelly Kleiman, NFP Consulting

    ON November 1, 2011 02:04 PM

    We have a basic disagreement, then: the “ravenous maw of the federal government” provides public services based on the consensus of the public, while “civil society” encompasses everything from vital necessities to bizarre hobbies and is controlled by the people who have the most dollars to invest.  I agree with you, though, that the chances of passing this tax reform are probably less than those lobbying about it on either side imagine.

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