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'Tis the Season to Give — Now More Than Ever Under Tax Reform

December 16, 2017

Holiday-charity-smart-givingGiving Tuesday broke all records this year. On November 28, a total of $274 million was donated to charity through the online campaign, as millions of individuals contributed an average of about $110 to great organizations around the globe. According to the Urban-Brookings Tax Policy Center, however, if certain provisions in the House and Senate versions of the Tax Cuts and Jobs Act become law, nonprofits could lose between $12 billion and $20 billion in annual charitable revenues. And that means donors will need to give a whole lot more on future #GivingTuesdays — and every other day of the year — if those nonprofits hope to maintain the same level of service they currently provide.

With Republicans racing to pass a final bill before Christmas, the outlook for nonprofits is bleak. Like the Grinch who stole Christmas, the plan making its way through Congress could steal billions in would-be donations from worthy causes. One provision in the bill is particularly damaging: the increase in the standard deduction.

By doubling the standard deduction and repealing or scaling back many itemized deductions, the plan would substantially reduce the number of taxpayers who elect to itemize their returns. The Tax Policy Center estimates that fewer than thirteen million taxpayers would itemize deductions in 2018 under the House version of the plan, down from more than 46 million under current law. The net effect: significantly reduced incentives for people to give. Urban-Brookings analysts note that most economists generally agree that tax deductions boost charitable giving — although to what degree is open to debate. Whatever the level, the likely trajectory for giving under the Republican plan is downward — an unfortunate circumstance for nonprofits, since the vast majority — 72 percent — of the more than $390 billion given to nonprofits last year came from individual donors (GivingUSA). These are the everyday givers who contribute $25, $50, or $100 to their favorite causes and many itemize those contributions.

Given these and other changes to the tax code that could undermine charitable giving, here is some advice for nonprofits seeking to sustain their good work and the donors who support them — individual givers as well as philanthropic foundations and corporations.

Let's start with corporations. Historically, companies make up the smallest slice of the overall giving pie — just 5 percent of last year's $390 billion total. That percentage includes cash gifts as well as "in-kind" donations — food, shoes, medical supplies, and other goods that nonprofits can put to work in the field. Unfortunately for nonprofits, most companies give less than 1 percent of their revenues — a rate that has fallen by half over the last two decades, notes Curt Weeden, co-director of GSEI New Strategies and author of Smart Giving Is Good Business.

The low levels of corporate support are particularly painful at a time when so many of America's one million-plus nonprofits are desperate for funding. In addition to direct giving and employee-matching programs, there is a lot more companies can do to help boost overall giving — including leveraging their national and global footprints, reputation, political clout, and employee policies.

1. Share the wealth. Given that U.S. companies are in line for the biggest corporate tax reduction in history, they should consider ramping up their charitable contributions to previous levels. Consider that companies in 2016 contributed $18.55 billion to charity; if they were to work their way back to 2 percent, they could substantially offset the projected $12 billion to $20 billion shortfall in individual giving we are likely to see under the final tax plan.

2. Double your money. One way for companies to increase their giving is to super-charge their employee giving match programs. Typically, companies match employee gifts on a 1:1 basis (up to a certain level). But if they committed, instead, to match employee gifts on a 2:1 basis, it would have the doubly positive effect of putting more money into nonprofit coffers and incentivize increased individual giving — a win-win for nonprofits and the people they serve.

3. Crowd source. The biggest bang from businesses comes less from their corporate foundations and more from their ability to leverage giving by their customers and employees. Taking advantage of the equity in their brand names, companies that participate in Red Nose Day and similar point-of-purchase campaigns are able to generate a much bigger financial impact than what individual nonprofits are able to do through standalone fundraising campaigns.

Indeed, nonprofits that work with companies to attract individual donations have seen impressive results. According to New York-based Engage for Good, an organization that helps companies with their cause-marketing efforts, the top consumer-led campaigns raised a whopping $441 million for nonprofits in 2016. Joe Waters, author and writer of the cause marketing blog Selfish Giving, suggests that businesses "have the marketing and the millennials to double or triple these totals if more of them adopted consumer-led fundraisers."

Foundations also could mitigate some of the negative effects of the tax reform bill by increasing their annual payout rates. While required by law to give at least 5 percent of the average market value of their net investment assets annually, most foundations treat that as a cap rather than a floor. Nothing, however, is preventing foundations from boosting their payout rates, and even a 1 percentage-point increase to 6 percent could yield several billion dollars more over and above the $59 billion that foundations distributed in grants last year.

Finally, individuals who do itemize should consider giving more before the end of the tax year than they normally would, enabling them to take advantage of the current standard deduction before it disappears. And in the future, individuals should do their best to maintain their pre-tax reform giving even if they decide not to itemize their returns. It's a big ask, to be sure. But the future of the nonprofit sector could very well depend on it.

It's assumed by almost everyone who pays attention to tax policy that individual giving will be negatively affected by the final bill that comes out of Congress. Combined with the impact of actions taken by the current administration and Congress to cut government support for nonprofits in almost all categories, it will be up to foundations and corporations to do what they can to fill the gap. I, for one, hope they go all out to ensure that the social sector is able to meet the needs of vulnerable communities and has the resources to support the arts and cultural institutions that represent the best of our society.

Let's make this a holiday season to remember for nonprofits, rather than one better forgotten.

Headshot_leslie_crutchfield_for_PhilanTopicLeslie R. Crutchfield is executive director of the Global Social Enterprise Initiative (GSEI) at Georgetown University's McDonough School of Business and co-author of Forces for Good and Do More than Give . GSEI operates the New Strategies Program, an executive training for nonprofit leaders on revenue diversification co-directed by Georgetown McDonough professor Bill Novelli and corporate philanthropy expert Curt Weeden.

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