No, The Sky Is Not Falling - 2018 Charitable Tax Law Changes
We have some fairly strong opinions on the effects of the new tax law regarding charitable giving. Despite the noise from the media - and even more than a few charities - over the potential negative consequences of the law because fewer people will now qualify to itemize, we believe these changes will impact giving only minimally. Here's why:
First, major donors ($25,000 and up) generally continue to have enough deductions to itemize. And 80% - 90% of campaign contributions come from major donors and lead gift donors.
In fact, looking at all charitable giving in the latest national study by the Association of Fundraising Professionals:
76% of gifts come from 4% of donors. Yes, you read that correctly -three quarters of all giving comes from only the top four percent of donors.
89% of all giving comes from the top 14% of donors (usually those who give $1,000 or more), and
96% of all giving comes from the 33% of donors who gave $250 or more. The stock market (particularly the wealth effect of a rising market) may influence giving levels, but study after study shows no correlation between major gifts and tax deductions.
Second, major donors may also have extra incentive to pre-pay existing pledges since the new law allows the donor to deduct cash gifts to public charities up to 60% of their Adjusted Gross Income (AGI) in the year of the gift. The old law only allowed up to 50% of AGI.
Finally, it is true that donors who make gifts of $50 or $100 will most likely not qualify to itemize under the new tax law. However, the standard deduction has been increased from $13,000 (married) to $24,000 (married). Therefore the donor won’t be able to account for their $50 donation by itemizing, but they now have an additional $11,000 in income that is shielded from federal tax. It seems like more than a fair trade – the loss of a $50 - $100 deduction in exchange for the tax savings on $11,000 of income! They can still make their gift and benefit more than before through the additional tax savings.
One of our partners once asked a donor for a second $100,000 gift to bring a bricks and mortar project through the home stretch. He said, "You know, I'm 90 years-old and I've got more charitable deductions carried forward than I'll ever be able to use, so I don't care about the deduction. But I do care about this project. I'm in."
Charitable giving is not driven by tax law; it's driven by a donor's passion for and connection with an organization. Sure, the benefit of a deduction is nice, but for the majority of donors it is merely incidental and is not what drives them to support charities. That comes when conscientious development officers and volunteers find thoughtful and meaningful ways to engage their donors and prospects in the good work of the organization. When mission and values align, it's the joy of giving that most often wins the day.