REMAINING OPTIMISTIC: Kelly Pepper, president and CEO of the Louisiana Association of Nonprofit Organizations, isn’t ready to concede donations will decline because of the new federal tax law, saying people primarily give to support the nonprofit’s cause. (Photo by Brian Baiamonte)
Editor’s note: This story has been updated since its original publication to reflect the total raised by the CAUW campaign in 2015 was $10 million, not $10 billion. Also, to clarify: ExxonMobil did previously use the online portal as a donation option but the 2017 campaign was the first in which the company went exclusively with the online portal.
Correction: The original story incorrectly stated a drop in workplace giving by ExxonMobil was “largely” responsible for the 2017-18 CAUW campaign collecting $1 million less than the previous year. While workplace giving at the plant did decline, the drop was not enough to accurately suggest that was a primary factor. Business Report regrets the error.
It’s supposed to be shorter, simpler and more generous to most taxpayers, but the latest federal tax law overhaul could also torpedo how much Americans choose give to charities.
Why, you might ask, would something designed to put more money in wallets and purses be a problem for nonprofit agencies that rely on the kindness of donors? In the simplest of terms its because giving to charity—and the accompanying tax write-off—is no longer the easiest way to reduce one’s tab to Uncle Sam. Under the new law, rather than itemize their charitable deductions—a tradition in the United States since 1917—about 90% of taxpayers are now expected to instead take the nearly doubled standard deduction of $12,000 for individuals and $24,000 for married couples filing jointly.
Consequently, some experts believe removing a key financial inducement to donate could shake up the pattern of individual giving to nonprofit organizations.
Previously, the charitable deduction allowed the average taxpayer to reduce his or her tax liability by about 25 cents on the dollar, meaning a donating of $100 earned you a $25 return on your taxes. Everybody won: the charity got $100 and the donor got a smaller federal tax bill.
No doubt, many give for far more heartwarming reasons, but the Urban-Brookings Tax Policy Center, which provides independent analysis of current and long-term tax issues, estimates charities will see a decline of between $12 billion and $20 billion in 2018 as the new law goes into effect. People will still give—annual charitable contributions in this country total more than $300 billion—but the loss nonetheless will be felt by a nonprofit sector already grabbling with declining donations.
“We really won’t know until next year what this looks like,” says Gus Levy, a CPA and owner of The Levy Company. “But it could definitely have an impact. We could see people changing their tax strategy, maybe not in eliminating gifts, but in changing the amount they give.”
This comes at a time when Baton Rouge-area nonprofits are already feeling the financial crunch. The Capital Area United Way announced in late April that dozens of local nonprofit agencies receiving support from the organization will see a funding reduction this year by as much as 30%. Though details will be hashed out in the weeks ahead the culprit is known: CAUW isn’t raising money like it once did, with last year’s giving campaign falling roughly $1 million short of its $8.2 million goal.
The nonprofit sector is an important one for the state. In 2014, the last year data was available, public charities nonprofits generated a $29 billion economic impact on the Louisiana economy and was responsible for 10% of the state’s workforce, according to the Louisiana Association of Nonprofit Organizations.
LANO President and CEO Kelly Pepper concedes nonprofits are bracing for the change, but is quick to add they’re not jumping to the conclusion that donors give primarily to save on their taxes.
“We shouldn’t anticipate a decline in individual giving as a result of this change,” she says. “Donors believe in the mission of the organizations they give to. They’ve been moved to support those organizations for their own reasons.”
Indeed, for many donors in the digital economy, donations don’t have to be tax deductible at all. According to the Pew Research Center, 22% of Americans donate annually to online crowdfunding platforms, which you can’t write off on your taxes. The most popular use of these platforms, according to Pew, is to help a friend or family member in need.
Pepper acknowledges raising money for charitable causes in Louisiana is a tough game, and the tax law’s potential impact is one more threat. As one of the poorest states in the nation, Louisiana has plenty of social needs, says Pepper, but what’s also needed is an an infusion of new private money from sources like large family foundations or high net worth entrepreneurs.
“Anecdotally, there’s not a lot of new money coming into the state,” she says. “We see the same level of funding, just shifted around between nonprofits.”
“Our hope is that people will recognize that we’re doing significant work, and continue to give to United Way. This is definitely going to test that.”
—GEORGE BELL, CEO, Capital Area United Way
Other potential challenges loom for nonprofits as well, including the CAUW’s difficultly in meeting its campaign goals during the 2017-2018 giving season. The organization collected $7.2 million during the campaign, $1 million less than the previous year and far below the $10 million raised in 2015.
Workplace giving, in which employees commit to a monthly deduction to support the United Way and, by extension, its partner charities, has been a bread-and-butter strategy of the national organization for decades. But millennials haven’t liked it. Most would rather take an active role in directing their donations, and sometimes that means global charities rather than local.
Moreover, says CAUW CEO George Bell, ExxonMobil’s workplace giving was down because for the first time, it was a shifted to an online portal rather than its usual pledge card format.
“For employees who don’t work behind a desk, it became a challenge,” says Bell.
It’s an adjustment the organization and its corporate partners will have to make. Acknowledging the long-term challenges with workplace giving as well as the changing tax law, Bell says the CAUW is thinking carefully about how to position itself for the upcoming 2018-2019 campaign, which kicks off in earnest this summer.
“What sets us apart is that we have ability to look at complex problems and put together a collaborative solution with vetted nonprofits in a meaningful way,” says Bell. “That’s our secret sauce.”
For example, the CAUW received a $1.2 million grant from the American Red Cross to help 108 families get back into homes after the flood of 2016. The agency identified six nonprofits involved in rebuilding to take on the work and those organizations provided a 25% match in in-kind donations and the result was the completion of 125 homes.
Still, Bell is a realist, knowing the decline in donations last year and the unknowns associated with the new tax law could mean further cutbacks for the agencies the CAUW funds.
“Our hope is that people will recognize that we’re doing significant work, and continue to give to United Way,” Bell says. “This is definitely going to test that.”
Other nonprofits remain cautiously optimistic about the tax law and believe that engaged donors will continue to give.
“It’s kind of a wait-and-see since most individual donors send in their donations in November and December,” says Gary Robertson, executive director of Adult Literacy Advocates of Greater Baton Rouge. “We don’t plan to change our messaging. We’ll let our track record speak for itself.”
Hope Ministries President and CEO Janet Simmons also believes that the tax law won’t create a big impact. The organization has seen success with its workforce retention program and community food pantry.
“I personally don’t think it’s going to affect us,” Simmons says. “Regular donors are coming in not because they get a deduction, but because they’re moved to do so. Plus, they may be doing better with the standard deduction and have every reason to continue to give.”