Stop and think for a moment about the number of revenue shifts that are affecting U.S. nonprofits, and in particular our local organizations.
Shifts in institutional funding are cyclical and somewhat predictable, even if they are destabilizing when implemented unexpectedly. Experienced fundraisers know that corporate and foundation funders are likely to change their giving patterns at some point. Service providers also recognize that government policy and funding can yo-yo as priorities and administrations change.
More worrisome is any indication that the loss of the charitable deduction for a broad swath of the American public will result in a permanent diminution of individual giving. Individual gifts have been the most lasting and reliable source of charitable revenue; data show that individual gifts comprise the largest percentage of total giving in the U.S. (According to Giving USA, 68.3 percent of all charitable contributions in the U.S. in 2018 came from individuals; 4.69 percent from corporations; 17.7 percent from foundations; and 9.28 percent from bequests.)
What happens if individual giving is seriously undermined by tax simplification?
Release of the Giving USA study raised alarms in the nonprofit sector for this very reason. For the first time in recent years—and only the 13th time in 40 years—total giving in the United States dropped (by 1.7 percent), and individual giving declined (by 3.4 percent).
In dollar terms, that translates to a nearly $2.5 billion decline. Why did individual giving drop more than any other category? Was it the shift in tax laws? Did the erratic stock market at the end of 2018 scare individuals? Are Americans becoming more tight-fisted amidst a chaotic social and political landscape? Or is it an unknowable combination of bad-news factors?
Christopher Stevens, chief of advancement at the Walker Art Center in Minneapolis, says it’s too soon to determine whether tax law changes will result in less charitable revenue. “It might take another year or two before the realities of the changes in the tax law sink in with many donors, and they could ultimately alter past giving patterns once they are more attuned to the tax code changes,” Stevens says. Last year, giving to the Walker increased slightly, on par with other years.
For Ruby Lee, CEO of CLUES (Comunidades Latinas Unidas En Servicio) in St. Paul, the development team focuses on the community benefit of charitable giving, not the tax benefit. “Our hope is that local philanthropists and donors continue to give and grow as they see the difference we are making in Minnesota by connecting underserved communities to resources that can enhance their lives and the lives of their families,” Lee says.
In June 2018, the American Enterprise Institute released an analysis of the potential effect of the new tax law on charitable giving. Under a static model, it predicted that the law would reduce charitable giving by $17.2 billion, or 4 percent, in 2018. The report included policy options to support tax cuts and charitable giving. These include allowing charitable gifts to be “above the line” on tax returns. (Above-the-line deductions are subtracted from the tax filer’s income before adjusted gross income is calculated.) The organization also raised the option of a tax credit as an alternative to the charitable deduction. Minnesota nonprofit advocates are pushing for above-the-line policies in the state tax code.
Meanwhile, the end of the year approaches, and people are considering donations to charity, encouraged by campaigns like Give to the Max Day (Nov.14), National Philanthropy Day (Nov. 15), Thanksgiving, Giving Tuesday (Dec. 3), Christmas, and the season of thanks, gifts, and gratitude.
Do you require a tax incentive to support the nonprofits that matter most to you, your family, your neighborhood, and the nonprofits making a difference in our cities and state? Or is your giving from the heart, offered because you can and because it offers you satisfaction and joy?
Our state’s remarkable nonprofits are navigating dynamic shifts in policy, politics, and practice, and they need your help more than ever this year to continue to do their good work and weather the changing climate of philanthropy.
Sarah Lutman is a St. Paul–based independent consultant and writer for clients in the cultural, media, and philanthropic sectors.