Will the sky fall for charities under the new tax law?

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Charities and much of the media are screaming bloody murder about the potential negative impacts of the new 503-page tax reform legislation.

“The tax code is now poised to de-incentivize the heart of civic action in America,” Dan Cardinali, president of Independent Sector, which represents charities, told the Washington Post.

“The GOP tax reform will devastate charitable giving,” shrieked the Los Angeles Times.

Stacy Palmer, Editor of “The Chronicle of Philanthropy,” said on Public Television’s Newshour that as much as $20 billion might not be given in 2018 next year because of the tax law change. An Indiana university study estimated the reduction would be $13 billion.

This apocalyptic vision fits in nicely with the attempt by Democrats to demonize the tax reform law and the Republicans who voted for it in hopes of reaping benefits in the 2018 elections.

But is charitable giving really going to implode? I think not.

The primary concern among the nattering negative cadre appears to be that the number of Americans who qualify for the charitable tax deduction will drop sharply now that the standard deduction has been doubled to $12,000 for an individual, $24,000 for couples. This will result in fewer people itemizing their deductions, and you can only deduct donations if you itemize, a key factor motivating charitable giving, according to the doomsayers.

But this ignores the fact that an awful lot of people already give generously from the heart without claiming a charitable deduction. According to the most recent IRS data, 68.5 percent of households chose to take the standard deduction under the old system, leaving them unable to claim a charitable deduction, but a lot of them made donations anyway. In 2016, the largest source of charitable giving was individuals at $281.86 billion, with two thirds of households giving money to non-profits.

It is estimated that under the new tax law, the share of people itemizing deductions could drop to as few as 5 percent.

It seems highly unlikely that individuals who haven’t been itemizing or those who won’t itemize under the new tax system will decrease their charitable giving when the standard deduction is doubled. In other words, the vast middle class will still probably give, though charities may want to ramp up their appeals.

What looks considerably more threatening for charities is changes in the estate tax under tax reform.

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Before the tax reform law, the estate tax applied only to estates worth at least $5.49 million for individuals and $10.98 million for married couples. The estate tax applied a 40 percent tax rate to estates worth more than those amounts.

In other words, the wealthy have been encouraged to make charitable donations because these donations were not taxed. If their money was left to heirs instead, the estate would pay taxes on amounts greater than about $5.5 million dollars for an individual or $11 million for a couple.

The new tax law tax doubles the annual exclusion amount (the exemption) for estate taxes to $10 million. Couples who do proper planning could double that exemption.

Only 0.2% of all estates ended up being hit with the estate tax under the old formula. The Tax Policy Center estimates that some 11,310 individuals dying in 2017 will leave estates large enough to require filing an estate tax return.

Under the new law, it’s likely that fewer than 1,000 estate tax returns will be filed per year with a tax due. In other words, just 10,000 individuals may be less likely to make charitable donations to avoid estate taxes.

But those individuals control a lot of wealth and many may be people who were previously motivated to give by a desire to avoid estate taxes.

According to the National Committee for Responsive philanthropy (NCRP), study after study shows that tax policy matters in charitable giving and that the estate tax is one of the most important motivators for those at the top of the income distribution. “Rather than see a sizable portion of their estates subject to taxation, wealthy families give while living to reduce the size of their estates; and they also give in the form of bequests upon their death, “ the NCRP says.

The Chronicle of Philanthropy has compiled detailed data on publicly reported charitable gifts of $1 million or more in each state. The largest recipients include private and community foundations, colleges and universities, healthcare programs, the arts, museums and libraries. The Chronicle assumes that a large proportion of those donations is motivated by estate tax planning.

So Oregon charities relying on big gifts may be in for a harder struggle going forward.

The Chronicle data shows the following significant gifts of $1 million or more to Oregon institutions just in 2017 and 2016:

2017

Donor Recipient Gift Value
Anonymous U. of Oregon (Eugene) $50,000,000
Anonymous Oregon State U. at Corvallis $25,000,000
Robert W. Franz Providence Health and Services (Portland, Ore.) $20,000,000
Michael and Arlette Nelson U. of Portland (Ore.) $10,000,000
Anonymous Oregon State U. at Cascades (Bend) $5,000,000
Fariborz Maseeh Portland State U. (Ore.) $5,000,000
Jordan Schnitzer Family Foundation (Jordan Schnitzer) Portland State U. (Ore.) $5,000,000
Anonymous U. of Oregon, Jordan Schnitzer Museum of Art (Eugene) $2,250,000
Keith and Julie Thomson U. of Oregon (Eugene) $2,000,000
Tim and Mary Boyle Providence Foundations of Oregon (Lake Oswego) $2,000,000
Tykeson Family Foundation (Don Tykeson) Oregon State U. at Cascades (Bend) $1,000,000
Robert W. Franz Blanchet House of Hospitality (Portland, Ore.) $1,000,000
Charles McGrath Oregon State U. at Cascades (Bend) $1,000,000

Note: Most of the bequests listed in this database are estimates. In many cases, donors’ bequests are announced long before their wills are settled.

 

2016

 

Donor Recipient Gift Value
Philip H. and Penelope Knight U. of Oregon (Eugene) $500,000,000
Gary and Christine Rood Oregon Health & Science U. (Portland) $12,000,000
Charles and Gwendolyn Lillis U. of Oregon (Eugene) $10,000,000
Philip H. and Penelope Knight Fanconi Anemia Research Fund (Eugene, Ore.) $10,000,000
Tim and Mary Boyle U. of Oregon (Eugene) $10,000,000
Allyn C. and Cheryl Ramberg Ford U. of Oregon (Eugene) $7,000,000
Edward and Cynthia Maletis U. of Oregon (Eugene) $5,000,000
Roberta Buffett and David Elliott Oregon Shakespeare Festival (Ashland) $5,000,000
Don and Willie Tykeson John G. Shedd Institute for the Arts (Eugene, Ore.) $2,000,000
Tim and Mary Boyle Reed College (Portland, Ore.) $2,000,000
David and Anne Myers Columbia River Maritime Museum (Astoria, Ore.) $1,000,000

 

Note: Most of the bequests listed in this database are estimates. In many cases, donors’ bequests are announced long before their wills are settled.

Source: Philanthropy.com; http://bit.ly/2lljb8m

 

 

 

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