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Tax reforms could hurt charitable giving, experts say

Tax reforms could hurt charitable giving, experts say

December 5th, 2017 by Helen Wilbers in Local News

While national groups worry the Senate tax bill passed Saturday may hurt charitable giving, some local charities have confidence locals' generosity will prevail.

"The people who give big are still going to give big, and the people who make (less) are making that donation from the heart," said Steve Mallinckrodt, director of SERVE, Inc. "I don't think a new tax law will change that."

Background

The Associated Press reported the Senate and House need to reconcile differences between the versions passed by each branch before the tax package can be signed into law. This process is expected to move swiftly, with President Donald Trump hoping to have the bill on his desk before Christmas.

Charities and other nonprofit groups across the nation are already taking a close look at both bills to see how they'll be affected. The outlook is potentially grim.

Under current tax laws, if a person itemizes deductions on their tax returns, they can claim a deduction for their charitable giving. That isn't changing under the House and Senate bills.

However, the Republican plans double the standard deduction taxpayers can claim instead of itemizing their returns. Individuals can claim $12,000, and couples $24,000. That means a drop in the number of citizens paying enough taxes to make itemizing deductions worth the added trouble.

Additionally, the Senate bill drops the highest personal income tax rate from 39.6 percent to 38.5 percent. While that leaves more money in the pockets of those paying the highest rate, it also means high-income households wouldn't need to make as large of donations to take full advantage of charitable-giving deductions.

That, in turn, means less incentive to donate to charity — or so some fear.

Expert opinions

A study published in May by the Indiana University Lilly Family School of Philanthropy found that increasing the standard deduction and decreasing the top tax rate would have a significant impact.

The study predicted nationwide, charitable giving would decrease by $4.9-13.1 billion in 2018 (1.7-4.6 percent). (Authors built the model based on a greater decrease in top income tax rate than the final Senate bill contained — 35 percent instead of 38.5 percent.)

The study's authors modeled the scenario based on prior research on the effect tax policy has on charitable giving.

A similar study by the Urban-Brookings Tax Policy Center, also based on the House version of the bill, predicted a $12-20 billion drop in charitable giving in 2018.

However, a separate bill introduced in the House by Rep. Mark Walker, R-NC, on Oct. 5 and in the Senate by Sen. James Lankford, R-OK, on Nov. 14 might offset some of those losses, if passed. The Universal Charitable Giving Act of 2017 proposes allowing individuals who aren't itemizing deductions to take a universal, above-the-line deduction of up to one-third of the standard deduction.

The Lilly study predicted a universal charitable deduction would increase total giving by 1.3-4.3 percent as a stand-alone provision.

Callaway impact

In Callaway County, many non-profits — from the YMCA to Callaway County United Way to Coalition Against Domestic Violence and Rape — must vie for limited donations. Monthly meetings of the Callaway Resource Network, a loose coalition of nonprofits serving Callaway County, regularly fill the meeting room at the Callaway Electric Cooperative.

A significant drop in available donor money could hurt them all.

However, Mallinckrodt said Monday he isn't too worried.

"As for SERVE and our local community, I'm confident (the tax bill) won't have a major impact," he said.

He firmly believes Callaway County locals don't give just for the tax breaks — and those who do significantly benefit from charitable deductions are the same people will continue itemizing, regardless of the increased standard deduction.

"I give to the United Way," he said. "It doesn't make much difference on my taxes. It makes some, but (not much). I give because I want to."

Likewise, Megan Fletcher, director of the Callaway County United Way, said she didn't think the tax bill would have a big impact.

"On a local level and with the Callaway County community, we have such a great community," Fletcher said. "I don't think it'll be affecting us, since most donors aren't getting the tax deductions but I'm staying optimistic. I'm hoping that our donors are still true to our mission, regardless of our tax credit."

United Way Worldwide has come out against the bill.

"I am deeply troubled by many aspects of the tax reform bill the Senate is now considering," United Way Worldwide President and CEO Brian Gallagher said in a Dec. 1 press release. "The threshold for United Way is the harm the bill will do to private charities. The elimination of the charitable deduction for 31 million middle and upper-middle income taxpayers causes such damage to our ability to help people, we have no choice but to oppose the bill."

Mallinckrodt said area residents have open hearts.

"Just last week, (the Fulton Sun) did an article because we were still needing to adopt 30 or 35 kids for Adopt-a-Family," he said. "One article in the paper (later), it appears we'll get everyone adopted and even be able to supplement our senior food baskets."

While he's not concerned about the tax bill's impact, Mallinckrodt said he thinks the universal charitable deduction is a good idea.

"It's a great way for people to be able to give more," he said. "It has some impacts on what tax revenue will be, but it makes such a difference in what the nonprofits are able to do. At a time when social services are being cut, it's a great trade-off, to keep that kind of incentive in place."

The Associated Press contributed to this report.