This week the U.S. House of Representatives and the Senate passed the much-discussed tax cut and reform bill, which focuses, primarily, on reducing corporate tax rates and re-organizing the individual tax code. In the charitable giving sector, non-profit leaders have expressed concerns that the greatly-increased standard tax deduction levels included in the bill – from $12,700 for married couples in 2017 to $24,000 in 2018 – will reduce the percentage of individual tax-payers who itemize deductions. In 2017, approximately 33% of tax-payers will forego the standard deduction and itemize, while estimates suggest that only 13% will behave similarly in 2018.
The reason this substantive decline in itemizing tax deductions concerns non-profit leaders is due to a belief that fewer itemizers will equate to fewer donors and dollars given away to 501 (c) 3 organizations. Put into question form, the clear concern is simple: If more individuals are not going to receive a tax “credit” for their gift, will they still be motivated to give?
It’s a fair and important question, to be sure. And while most analyses suggest that charitable giving will be negatively impacted by the changes incorporated within the new tax bill, I don’t believe this is the most concerning outcome of the tax bill even if it comes to pass. In fact, even if charitable giving should decrease by $10 billion or $20 billion as some analyses suggest, I still don’t believe this short-term result is the most concerning development related to this tax bill.
My deeper concern stems from a broader observation about policy and civil discourse today in our society. The tax cut and reform bill only evinces my unease, it is not the cause of it.
We live in a political and social context today in which there is no serious discussion about the role of philanthropy, the importance of giving personally, in support of the common good. Instead, we have treated all questions related to what makes a healthy, cohesive society as a binary choice: either the answer is government intervention or the answer is free-market capitalism. And while both of these institutions are critical to a high-functioning, free, and healthy society, they, alone, are not the full answer.
The U.S. has long been the world’s leader in generosity. On average over the last 50 years, Americans have given away approximately 2% of disposable income annually. No other country comes even close to that record of generous support. Historically, Americans have acted so generously in support of the least among us and in support of other communal concerns because of a broadly accepted ethos – that giving is good. That it is better to give than to receive. That being generous is a healthy, valuable, and esteemed trait in humans.
But this “generosity ethos,” is being questioned now more than ever during my lifetime. Politicians are questioning the appropriateness of gifts in support of educational institutions (and, now, through this tax bill, beginning to tax some college and university endowments). Additionally, in my consulting experiences, I’ve witnessed a rise in governing board members and other influential supporters pushing and jawboning non-profit leaders to seek “efficiency,” and “profit-making,” as if they were leading for-profit enterprises. In some settings, the non-profit mission itself is being called into question.
Quietly, I do not believe giving totals will be injured in 2018 because of this tax bill. I believe the analyses of this tax bill suggesting a negative impact over the short-term in charitable giving are wrong. Charitable giving, broadly-speaking, tracks very closely to market returns. So, if the financial markets continue to do well, charitable giving will probably fair well in 2018, and perhaps, for the next few years. Longer-term, though, I do have concerns. When the important role of personal giving is de-emphasized in our tax policy, we are heading down a pathway that leads not only to fewer Americans making charitable gifts, but more importantly, fewer Americans believing that they should.
This broader and longer-term loss of focus of what, truly, has made America great will be the impact of this tax bill that is most concerning to me. It’s not just our democratic government, and its not just our version of capitalism that has made the U.S. special. It is also our historically-agreed-upon “generosity ethos.” What has made and will continue to make America unique is an emphasis on helping each other, supporting those who have less than us, and, through our private giving, showing deep care for the common good.
This “generosity ethos,” though, isn’t a birthright. It must be nurtured and consistently reinforced. It must be taught throughout childhood. It must be modeled in communities. It must be celebrated by honoring generous individuals. And, yes, it must be affirmed in our fiscal and tax policies. When we consistently reinforce the “generosity ethos” in our families, our churches, our schools, our communities, and our political policies, we all benefit. Not only do those who need the care, support, and encouragement get assistance, but the givers are transformed too. It truly is better (and healthier) to be a giver than a taker.
Additionally, we end up being the envy of the world because we do not simply rely on either government or business to solve all our problems, to care for those who might fall through the cracks, or to enhance the communal experience for all. We have this third sector, this non-profit sector. This other beautiful, vibrant, robust, personal, and caring component of society which is supported in patchwork fashion by millions of generous people who are compelled to respond to needs larger than their own. The non-profit structure which encourages the expression of the impulse to help each other is as much a part of the American success story as is any political or business-related accomplishments.
So while many are focused on the short-term impacts of the tax bill on charitable giving totals, I’m not. What concerns me is not hearing any political, business, or other social leaders consistently and fervently raising the issue that we are in a longer-term trend of minimizing the role and importance of private giving to the health and well-being of our society. Over time, when fewer and fewer of us are encouraged to give in support of each other, we all lose. And not just financially. We lose what has made our society the envy of the world. We lose our capacity to relate to our common humanity.
This tax bill is not our primary problem, it’s just another expression of it.
2 thoughts on “The New Tax Bill and Charitable Giving: Another Take”
Jason, this is one of the best responses I’ve read in the past few weeks on the subject of the recent tax bill, and how it affects charitable giving. Thank you for seeing the larger picture — that while it may not be as bad as most fear in the short term, it has the potential to be much more insidious and subversive to our industry in the long term. Kudos to you for writing this!
Thanks Phil for reading and for your kind words. I hope you enjoy a wonderful holiday season and a great start to 2018!