Skip to main content

How Recent Tax Reform Hurts Charitable Giving


Back in February, news broke that the latest tax reform would increase the amount citizens would need to donate in order to reap tax benefits. I think we mentioned the topic in class once, but it only started to come to mind more once my parents started talking about it. Over spring break, I remember my dad thinking out loud about donating to a charity he likes before mentioning, “Now I won’t get a tax deduction…” He still ended up donating, but I lingered on what he said. After some research, I found out that the amount an individual had to give in order to receive benefits has doubled in the last month (CNBC). Although donors will most likely continue their philanthropy, removing one of the tangible benefits of giving will no doubt discourage the average American from making more donations.
So what does this mean for the charities that rely on smaller donations? Grassroot organizations, which depend on smaller, more local donations will certainly take a hit. Whether the donation is $10 or $500, any amount can make a significant impact on organizations like these. With the reformed tax law, it will be local charities that suffer the most. This creates a sudden decrease in smaller scale philanthropy and instead isolates donors to the few, wealthy individuals or corporations who will be able to reap the benefits of the new tax reform.
There are, however, ways to give and still receive tax deductions. For the average donor, it would mean rather than giving $3000 dollars annually, for example, instead giving $9000 every three years. Though, if this “bunching” strategy becomes more common, it will become harder for charities to plan out their own budgets (CNBC).
The tax reform won’t necessarily limit all smaller donations, but it will definitely impact the way Americans decide to give. I believe that raising the bar for tax benefits will dissuade middle and lower-class income individuals from giving as much as they would like to. So to the readers I ask a few concluding questions: does this tax reform single out middle and lower-class Americans? Where is the line between giving out of pure passion and giving because of benefits? Is giving because of tax benefits still considered true philanthropy?


Comments

  1. Hi Sara,

    I think that your blog post raises an interesting question, and one I would like to discuss more in class. I tend to agree with you that by taking away the tax incentives it will dissuade many middle and lower-class Americans form donating. I am sure that some and hopefully even many will still donate, however, I believe the reality is that many who donate do so largely for the tax incentives. I do not think the incentives may be the only factor in their donation, but I think it may be a large one. I still believe that people genuinely want to donate their money and bring about change. However, I also think that they may be more inclined to do so, if it is advantageous to them in the end. I do also think that these new tax reforms single out middle and lower-class Americans, and that it will make it harder for them to donate to causes they want to support. I think this is unfortunate because I believe people will stay away from giving smaller donations because they will not get the same tax breaks. I agree with you that this hurts the smaller organizations the most who rely on any amount of money to help further their cause.

    I also think that you bring up an interesting point about the line between giving because of passion and giving because of benefits. To me, there is definitely a line, and I think that giving just to get benefits is not as morally good as giving because you have a passion to give. However, it is hard for me not to call this philanthropy because at the end of the day, money is still being donated that can have a large impact. I believe that the most true form of philanthropy is when someone decides to donate money because they are passionate about the cause, or are passionate about giving money to help others. This form of philanthropy is done regardless of potential benefits or positive press. There is a difference to me between that kind of philanthropy and donating money solely because you get tax breaks or other benefits. I still do believe that the latter is philanthropy and should count as philanthropy because money is being donated that can have a positive impact on people. However, I do think there is a difference between the two forms of philanthropy, and that it is important to note and discuss that difference and whether or not is should impact our view of philantropy.

    Matt Rozansky

    ReplyDelete
  2. I meant to write philanthropy not philantropy as my last word.

    Matt

    ReplyDelete
  3. Sara,

    It's funny that you mention your conversation with your dad over spring break because I had a very similar conversation with my dad as well. He was saying that in the past he felt incentivized to donate because it would come with a tax break, but now a tax break comes only after donating $24,000. I agree with you that this will likely cause less donations on average because the donations don't seem like they're as "worth it" without the government incentive.

    This article (https://www.pbs.org/newshour/economy/making-sense/what-the-new-tax-law-means-for-your-holiday-giving) suggests even though most people donate for reasons other than the tax write-offs, charitable donations will likely be reduced significantly. It is strange to me that the government is prioritizing the causes of the rich by subsidizing their donations. And I don't believe it is even saving them money (but I might be wrong) because the standard deduction was increased. One explanation that I can think of is that the government wants to encourage rich to give away their money and "spread the wealth" but doesn't need to encourage the middle and lower class to do the same.

    Whatever the reasoning, I still think it is wrong that the policy ends up favoring the organizations that usually take in larger donations (like those to universities and larger, established organizations). I believe that the government should subsidize all donations or none, because otherwise it is inherently favoring the charity of some people over others. Just for fairness reasons alone, I think the new policy on tax deductions is a problem.

    -Adiel Felsen

    ReplyDelete
  4. This comment has been removed by the author.

    ReplyDelete
  5. After spending so much time learning and becoming more enthusiastic about philanthropy as a student, this news is sad to read. The tax reform is something that I see as a negative overall for philanthropy. The amount of money now required in order to begin to get benefits has been set to something unattainable for many and I believe that this can only negatively impact the nonprofit sector. This is because the change in amount of money needed directly challenges the capabilities of people ranging from the lower class to the upper middle class.

    As Adiel mentioned, the purpose of the recent tax reform may be situated somewhere in the realm of an attempt to get upper class citizens to donate more. While this boost in donations may very well occur, it is still important to consider the detrimental effect the reform will have on less wealthy philanthropists and small nonprofits. We spent a lot of time in class discussing the challenges of managing large amounts of money faced by smaller organizations. Nonprofit organizations that are just starting out or that are smaller in nature are not often capable of using large sums of money appropriately. This makes the new tax model ineffective for small nonprofits because instead of encouraging middle and lower class houses to donate smaller sums to grassroots organizations, the model targets homes with significantly larger disposable incomes.

    To answer the two remaining questions posed at the end of this post, I am not sure if a definitive line exists between giving out of passion or for the receiving of benefits. I believe that one should donate because they want to help a group flourish, not because they want to get something in return. That being said, I also believe that many donate with good intentions but need the tax benefits associated with donating in order to be secure financially in doing so. This to me eliminates the existence of a set line between the two reasons for giving questioned. This reasoning also ties into how I feel about giving because of benefits. I believe that philanthropic actions should come from both the head and heart. Donating should make sense financially and emotionally for a family, and if this means getting tax benefits as a result of giving money to a nonprofit organization then I see it as true philanthropy.

    - Julia Diana

    ReplyDelete
  6. Sara,

    I find it fascinating that the conversation you had with your father sparked such a hot topic. I feel that I have such similar experiences with my parents in that they teach me so much about politics and current events at the dinner table. There’s such an interesting statistic regarding students in high school formulating their political opinions solely based on their parent’s positions.

    In terms of the new tax law, it is interesting that the government is taking the interests of the rich more seriously than the middle or lower class. The government must feel that subsidizing and prioritizing the rich donations are more beneficial in the long run. Although this may be true, it is crucial to be diverse when donating to certain causes. There are plenty of grassroots organizations that do incredible things, but cannot reach their full potential due to lack of funds. I feel that this new tax law can be seen as an incentive for rich people to donate more of their resources. The government is making it easier for the wealthy to donate so can donate more money and more often.

    Overall, I believe that the new tax law does wondrous things for the rest of the economy. It will boost the economy in the long run and fix up issues in the housing markets. In terms of philanthropy, I’m not sure how much will change.

    Yours,
    Matt

    ReplyDelete
  7. Sara,

    This was an interesting read. I had not realized that the cutoff for receiving benefits has increased so dramatically. Smaller organizations will no doubt suffer as a result of this change. Many of them depend on these small donations to function. I am hopeful that this change will not hurt these organizations too severely.

    In response to your first question, I do agree with the assertion that lower and middle class Americans are being singled out. Many Americans, especially on the poorer end of the spectrum, simply can't afford to give much more than they already do. Unless they donate in huge chunks very occasionally, as you suggested, I don't see how they can hope to reach the cutoff. While wealthy donors remain unaffected, the lower classes will suffer.

    In response to your second and third question, I believe that it is important that we do not look down upon people who donate with "impure" motives. At the end of the day, these people are still giving to important causes. In my opinion, these motives should not matter and "true philanthropy" is not important to actual philanthropy. Adding extra financial incentives to donate to non-profits in perfectly acceptable. A fair amount of people who donate would not donate without these incentives, so it is important that we have them even if we don't approve of the reasons for giving. Like I said previously, donations are more important that motives.

    - Christian

    ReplyDelete
  8. Well, the website just completely erased my first attempt at a response, so here's take two!

    Hi Sara,

    Thank you for your interesting blog post. I appreciate you discussing this topic, as we did not have much time to go over it in class. You explained everything in an easy to follow manner so that we could all be clearly informed about the issue.

    Firstly, I would like to argue that giving with tax benefits in mind is still valid philanthropy. I may be wrong, but I believe that tax breaks for philanthropic donations will never exceed the donation itself; donations will always have a net monetary loss attached to them. No truly selfish person would donate, even with tax benefits being offered. In the past, tax benefits have encouraged giving and made it easier to give to that which one cares about. However, this change in tax policy has led to some unfavorable changes.

    I believe that this tax change does in fact single out middle and lower-class individuals. Research has shown that persons with lesser means often give the most (especially when considered as a percentage of income), largely due to their ability to empathize with those in difficult situations. This tax reform removes policy that would make it easier for individuals to give to their favored causes. While small donation amounts may never have factored into taxes, the fact of the matter is this policy change will affect the definition of philanthropy.

    Laws and policies ultimately form societal definitions. When policy is changed so that only larger donations from fewer people are considered as philanthropy, this trickles down to the way people discuss philanthropic giving as a whole. In addition, the democratization of giving suffers. As the way people give shifts to accommodate this new policy, smaller organizations and grassroots movements will suffer.

    How can we define philanthropy for ourselves? How can we create the change we would like to see? How can we affect policy? Thanks for reading my response, and I hope this sparks consideration and critical thinking as to how policy dictates our lives in less than obvious ways.

    -Becca

    ReplyDelete

Post a Comment

Popular posts from this blog

I Support the Abolition of Welfare-Based Non-Profits

To some, the statement may sound radical, but to me, it is simply logical. I support the abolition of human welfare-based non-profits. At this current moment in time, I believe they must exist, as they provide of vital service. But, I think that as a society, it is our responsibility to limit the vitality, and eventually the existence, of these non-profit organizations. Continuing to rely on non-profits is like putting an ice pack on a broken bone; it may help relieve some of the immediate pain, but without further attention and help, it will never truly heal. The system must change. The current institutional system of inequality will never allow this society to progress to its full potential as long as it continually oppresses and restricts a large sector of the population, obstructing their ability to reach greater heights. The government needs to restructure its budget and begin investing in social policies and programs that will remedy these imbalances. It is the most impactful, ef

How do we define good?

Up to this point in Philanthropy, we have been plagued by several difficult questions: ranging from what is the best approach to giving, to who should the finalists for the grants be, these questions have tested our morals and values, promoted discussion, and challenged us. However, I do want to pose another difficult question that I feel underlies the concepts of philanthropy and of this class: what does it mean to be good? Or in other words, what does it mean to be a good person? This is a question I always reflect on, as understanding my concept of “good” allows me to be a better philanthropist and a better person. How I define this idea of “good” can be and most likely is different from other’s definitions; but no matter how it is defined, it is important to be able to define it. I read an article published on Huffington Post entitled “Here’s What It Means to Be a Good Person, Gosh Darnit.” I found this article while I was doing some research on this idea of “goodness.” The pu

Don't Undervalue the Operating Grant!

In the decision on where to donate the program and operating grants, there was dissent as to whether an organization should be given both grants. For most, it was a well-set position that the recipient of the program grant would be ineligible for the operating grant and that, in turn, the opposing candidate denied the program grant would be almost unanimously chosen for the operating grant, as happened today. In my own stance as to why each organization would benefit from the receipt of a particular grant (ACA for the program grant, Truth Pharm for the operating), I tried to delineate the specific reasoning behind my argument, but as passions flared and the final vote came closer, it seemed as if the class had already decided that the smaller operating grant was inferior to the program grant. I sought to remain cognizant to the importance of each grant, but those passions resulted in me hearing a lot of well-meaning yet slightly outlandish arguments that seemed to use need for the ope