Category Archives: Education

Tax Reform – The Surprising Ways It Will Hurt Philanthropy

Tax Reform – The Surprising Ways It Will Hurt Philanthropy

The new federal budget recently approved by Congress relies on tax reform to offset any potential loss of revenue. Unfortunately, some of the proposed reforms could significantly limit philanthropy in the United States. According to a study from the University of Indiana, the recent tax reform plan offered by congressional republicans and President Donald Trump would likely curb charitable giving by more than $13 billion annually. Several different parts of the proposed reforms would affect giving, which further complicates the issue. Currently, two items are occupying the minds of the philanthropy community: limitations to itemized deductions and the repeal of the estate tax.

Proposed Increases to the Standard Deduction

calculatorOne of the proposals that has caused the most anxiety involves doubling the standard deductions that filers can claim. This measure is meant to simplify the tax process by reducing the need for people to itemize their deductions. As a result, fewer people would be eligible to claim a charitable deduction. Many nonprofits worry that giving to charities will decline without an explicit tax benefit to incentivize donors. At present, about one-third of all Americans itemize their deductions, but this rate could fall as low as 5 percent under the new plan.

The study from the University of Indiana’s Lilly Family School of Philanthropy largely looked at the impact of less itemization by using the 2014 Tax Reform Act as a benchmark. While the researchers acknowledged that tax deductions are not a driving force for philanthropy among most Americans, they did find that these deductions encourage people to give more than they normally would. The study considered the possibility of expanding the charitable tax deduction and predicted that such a policy would actually increase donations by more than $4 billion annually.

Representative Mark Walker, a republican from North Carolina, introduced a bill that would perhaps find a good median between these two extremes. In addition to the republican’s plan to increase the standard charitable deduction, Representative Walker proposes introducing a separate charitable deduction worth up to $2,100 for individuals and $4,200 for couples. Already, many charities and nonprofits are championing this bill regardless of the outcome of other proposals. The bill has a fairly conservative view because it limits the size and scope of philanthropy-related deductions while still encouraging Americans to continue giving. While some organizations have argued for a separate charitable deduction policy that has no cap, Representative Walker’s plan may be more palatable for a fiscally conservative government.

Growing Pressure to Repeal the Estate Tax

moneyAnother proposal that has caused some anxiety in the philanthropy community involves the estate tax. President Trump and some senators have pushed heavily to repeal this tax, but many individuals think that such a measure would hurt millions of Americans while benefiting only the wealthiest families. Currently, the tax applies only to estates valued more than $5.5 million for an individual or $11 million for a couple. Only about 5,000 estates pay the tax.

What many people do not realize about this tax is that it drives much of the charitable giving in the United States. The people who pay the tax are responsible for a significant amount of philanthropy in this country because many of them would rather give their money to charity than pay the tax. Individuals and couples can avoid the tax altogether by making a minimum contribution to various charitable organizations. Without the tax, there is less motivation to give so much.

To see the effect of repealing this tax, we can look at 2010, when the government didn’t enforce the estate tax. That year, charitable giving fell 37 percent from the year before. When Congress restored the tax in 2011, giving increased by 92 percent. The drops in giving most significantly affected colleges and universities, healthcare organizations, and community foundations.

The estate tax remains hotly contested in Washington. Many democrats see repeal efforts as a way of rewarding wealthy Americans during a time when the wealth gap is causing a great deal of social tension, but the policy has been central to Republican goals for a long time. However, not all Republicans agree with the repeal. Senator Susan Collins, for example, has spoken out against repeal by pointing out that the tax earned $18 billion for the federal government last year.

Lily Batchelder, a New York University professor who formerly worked for the Obama administration, has argued for increasing the estate tax, calling it the most progressive tax that exists in the United States. However, the Trump administration, citing research from Family Enterprise USA, claims that the tax actually hurts the economy. According to this research, up to one-fifth of family business owners say that the estate tax limits their ability to create new jobs in their communities. Congressional representatives have also opposed the estate tax, saying that it unfairly adds an additional tax on income that was already taxed. However, the Federal Reserve has estimated that most of the money targeted by the estate tax (in estates larger than $100 million) stems from investment gains that were never previously subject to capital gains taxes.

Women’s Philanthropy Institute Examines Giving, Gender, and Happiness

Women’s Philanthropy Institute Examines Giving, Gender, and Happiness

In October, the Women’s Philanthropy Institute announced the results of its Women Give 2017 study, which aimed to examine the connection between philanthropy and life satisfaction. In particular, the study hoped to look across gender lines to see what impact philanthropy has on overall happiness and charitable giving. The data examined in the study came… Continue Reading

Interest in Journalism Philanthropy Continues to Grow in US

Interest in Journalism Philanthropy Continues to Grow in US

Recently, The Guardian announced the inception of a new American nonprofit designed to support independent journalism and bolster story-telling. Already, the organization has raised more than a million dollars in philanthropic grants to support its mission. Operating under the name theguardian.org, the organization has pledged to fund honest and independent reporting on the most pressing… Continue Reading

The Advantages and Potential Drawbacks of Donor-Advised Funds

The Advantages and Potential Drawbacks of Donor-Advised Funds

While most people probably think of philanthropy as direct gifts to charities and nonprofit organizations, there are several financial vehicles that can help individuals make donations. One of the most prominent vehicles for people with significant wealth is a foundation. However, several other options are worth considering as well. Another potential option is a donor-advised… Continue Reading

The Debate about Charity Overhead – What You Need to Know

The Debate about Charity Overhead – What You Need to Know

The debate about charity overhead is often in the news these days. For example, the Wounded Warrior Project fired its top two CEOs last year after it deemed a million-dollar meeting was entirely too extravagant. Only a few years ago, Dan Pallotta gave his famous TED talk entitled The Way We Think About Charity Is… Continue Reading

The Inherent Problems with Ratings from Charity Watchdogs

The Inherent Problems with Ratings from Charity Watchdogs

A number of watchdog organizations exist that monitor and rate nonprofit organizations. Some of the largest ones include CharityWatch, GuideStar, the Better Business Bureau Wise Giving Alliance, and Charity Navigator. However, a number of newer groups, such as GreatNonprofits and GiveWell, have gained significant momentum in recent years. These organizations offer their own breakdown of… Continue Reading

5 Ways to Make Your Charitable Giving More Tax Friendly

5 Ways to Make Your Charitable Giving More Tax Friendly

When it comes to charitable giving, choosing a charity is only part of the process. In fact, there are a number of different approaches to philanthropy, and individuals need to consider all the possibilities before they decide on the best one for their personal needs. Thinking critically about the tax consequences of each strategy can… Continue Reading

The American Red Cross – A Critical Disaster Response Organization

The American Red Cross – A Critical Disaster Response Organization

The American Red Cross plays a critical role in maintaining public health and safety, both at home and abroad. When people think of the American Red Cross, their thoughts likely turn to blood donations or CPR training. Indeed, the organization plays a critical role in collecting blood donations to aid in lifesaving treatments at hospitals… Continue Reading

This Is How the Wounded Warrior Project Supports Veteran Reintegration

This Is How the Wounded Warrior Project Supports Veteran Reintegration

Wounded Warrior Project is one of the highest-rated organizations on Charity Navigator in terms of accountability and transparency. The organization offers a wide range of services for veterans and their families, including assistance with the transition from military to civilian life. While serving, many people are put under an enormous amount of pressure. They can… Continue Reading

World Vision Aims to End HIV Among Adolescent Girls by 2030

World Vision Aims to End HIV Among Adolescent Girls by 2030

Dedicated to giving back to the community, Eugene Chrinian provides support to a number of charitable and nonprofit organizations working at home and abroad. One of the organizations that he supports is World Vision, a nonprofit that aims to protect and improve the lives of children around the world. One of the major goals of… Continue Reading