Is the New Tax Code Good or Bad for Charities?
Above: Superman in Phnom Penh: Heroism comes in many forms and many places. Photo by John Vink.
Do you have something in common with Superman, Wonder Woman, Black Panther, and the other superheroes from the DC Comics and Marvel universes? You just might. Superheroes are consistently hopeful, even if, from time to time, they take a short-term strategic retreat. Furthermore, they strive to control their own destinies, seize opportunities, and fight for good. Those are all qualities every fundraising professional should emulate, especially now that the nonprofit sector must contend with a new tax code.
The new American tax code presents you with two critical choices as you work to raise money for your organization:
- You can buy into the doom-and-gloom media hype about the new tax code and prepare to use it as an excuse for your inability to reach your fundraising goal.
- Or you can be your own superhero by embracing optimism and behaving proactively to seize opportunities to enhance your fundraising efforts and results.
So, which option will you embrace?
As a fundraising superhero, there are nine reasons for you to be optimistic about the recent tax cuts, even though a number of studies from respected sources estimate that the Tax Cuts and Jobs Act will reduce charitable giving in 2018 by $13–21 billion. Here are just some of the reasons for optimism:
- The worst-case forecast predicts a $21 billion drop in philanthropy, a significant figure. However, even if accurate, total charitable giving would still be within the historical range of 1.6–2.2 percent of gross domestic product (GDP), even without any economic growth.
- Fortunately, it is unlikely that economic growth will flatline. More likely, the economy will continue to grow as it has since the Great Recession. Second-quarter 2018 GDP grew at the annualized rate of 4.1 percent, underscoring this point. Continued robust GDP growth could partially or completely offset any drop in giving resulting from new tax code provisions, such as the doubling of the standard deduction that will reduce the number of itemizers by about 30 million people. A boost to GDP could boost donations because charitable giving closely correlates to GDP.
- For both individuals and corporations, a reduction in taxes makes more money available for charitable contributions. In particular, individuals tend to make current gifts from disposable income. If their disposable income goes up, it’s likely they will also increase giving. Many corporations (e.g., Wells Fargo, Southwest Airlines, JPMorgan Chase & Co., Best Buy, BB&T, Apple, Ally Financial, and others) have announced commitments to significantly increase corporate giving.
- The new tax code lifts the deduction limit from 50 percent to 60 percent of adjusted gross income. This makes generously donating more attractive for wealthy donors.
- As the economy heats up, wages will likely increase. We’ve already begun to see this at a modest level. Increased wages mean increased disposable income, which will likely lead to increased giving.
- With a growing economy, more jobs will be created. We’re continuing to see this result in the 17-year, record-low unemployment rate, with the July 2018 figure at 3.9 percent. With more people working and earning, more people will be in a position to give. A low unemployment rate is one of the factors that will drive wages upward, thereby increasing personal disposable income.
- The growing economy also lifts the public’s spirits. We’ve seen significant growth in consumer confidence, which now sits at a 17-year high. When consumer confidence rises, so does consumer spending. People might allocate some of their increased spending to charitable causes.
- Real estate values are increasing around the nation. With an increased home-ownership rate, this means individuals have appreciated property they can donate in life or as part of an estate plan. It also helps foster a sense of personal financial well-being that can help fuel even greater consumer confidence.
- Growth in the stock market also gives individuals appreciated assets they can consider donating. Furthermore, foundation giving can be positively affected, as foundations and donor-advised funds see their assets increase.
The worst-case scenario, while not great, is also not terrible in historical terms. In addition, there are plenty of reasons to believe that we will not experience that worst-case situation. We might even continue to see strong philanthropic growth. Therefore, be an optimist.
Together, we can facilitate greater philanthropy, and make the world just a bit better. That’s what fundraising superheroes do.
Just remember, strong charitable-giving growth will not automatically happen without you. Superheroes confidently act boldly to meet challenges. For you, there are certainly challenges, but there are also fundraising opportunities. Rather than being a fearful victim of the new tax code’s challenging provisions, be your own superhero by confronting challenges and seizing opportunities that have been created or maintained. Here are some tips to ignite your fundraising superpowers and help you raise more money in the current environment:
- Master the fundamentals: Create a solid case for support. Engage prospects and donors in ways meaningful to them. Ask for support. Make giving easy for donors. Effectively steward all gifts.
- Seek gifts of assets, not just cash: Of all financial assets, only 1–3 percent is held in cash. The rest are in stocks, bonds, retirement funds, personal property, etc. Organizations that seek noncash donations (in addition to cash) grow up to six times more quickly than organizations that accept only cash contributions, according to new research from professor Russell James III, J.D., Ph.D., CFP®.1 Under the new tax code, donors can still avoid capital gains tax when they donate appreciated assets, even if they are nonitemizers. And older donors can continue to make donations from their individual retirement accounts (IRAs).
- Behave in a donor-centered fashion: In other words, treat prospects and donors the way they want to be treated. By being donor-centric, you will acquire and retain more support, thereby increasing the lifetime value of donors to your organization.
- Recognize that donor-advised funds (DAFs) are not the enemy: Periodically, fundraising professionals debate whether DAFs are a force for good or not. The debate is irrelevant. The existence and rapid growth of DAFs are facts of life. As fewer Americans itemize tax deductions and instead take the newly increased standard deduction, many people will bundle their deductions and itemize in some years but not others. In the years when they itemize, they will make charitable contributions. In years when they don’t itemize, they may not donate or may not donate as much. In the off years, don’t assume the donor has abandoned you. Your organization will want to continue engaging these sporadic, strategic donors. Another way donors may choose to bundle is with a contribution to a DAF in a given year. The DAF may then make annual contributions to your nonprofit. Because increasing numbers of people are establishing DAFs since the enactment of the new federal tax code, you need to make giving through a DAF easy.
- Understand the language of fundraising: When communicating with people, word choices matter. For example, researcher James has found that telling a prospect, “Avoid capital gains tax by making a gift of stocks or bonds to charity,” will generate significantly more interest than simply saying, “Make a gift of stocks or bonds to charity.” James also discovered that referring to a “gift in your will” will generate much more interest than talking about a “bequest.”
- Keep learning: We are fortunate to live in an enlightened time for fundraising. Researchers around the world are providing valuable, actionable insights. Knowledgeable authors are writing practical, useful books, articles, and blog posts. Speakers are generously sharing their wisdom in webinars, conferences, podcasts, seminars, and classrooms. While not all of the information is worthwhile, much of it is worth a look. Some of the tips will be worth testing at your own organization. Fundraising is certainly an art. However, it’s also a science. We need to embrace both. We need to continually grow as professionals, which is one reason CFRE International has a continuing education requirement for certification.
At this point, you can’t control what’s in the tax code. However, you can control your own actions. You can raise more money than last year. Together, we can facilitate greater philanthropy, and make the world just a bit better. That’s what fundraising superheroes do.
While Michael J. Rosen is not faster than a speeding bullet, more powerful than a locomotive, or able to leap tall buildings in a single bound, he has been named one of America’s Top 25 Fundraising Experts. A past recipient of the AFP/Skystone Partners Prize for Research on Fundraising and Philanthropy, he is president of the consulting firm ML Innovations and publisher of the nonprofit blog MichaelRosenSays.wordpress.com. He can be reached at email@example.com.