[Publisher's Note: Michael J. Rosen, CFRE will be interviewed by CausePlanet in a free webinar about his award-winning book, Donor-Centered Planned Gift Marketing. Learn more and register for the October 17 program by clicking HERE. If you need a speaker or trainer, contact Rosen today.]
A new report issued by the Pew Charitable Trusts provides valuable insights into the effect that tax deductions and credits have on charitable giving. The report comes at a critical time as federal and state governments continue to look for additional sources of revenue including cuts to charitable-giving tax deductions.
The Pew report, written by Elaine S. Povich, looks at the impact of tinkering with tax write-offs for charitable giving in a number of states including Kansas, Michigan, Missouri, New York, North Carolina, and Vermont. The report nicely summarizes the impact of tax policy on philanthropy:
Tax incentives for charitable giving directly affect donations, particularly from high-income donors, according to Jon Bakija, an economics professor at Williams College. ‘Tax incentives for charitable donations in the US succeed in causing donations to increase, probably by about as much or more than they cost in terms of reduced tax revenue,’ he wrote in a paper published recently by the journal Social Research.”
Bakija went on to write:
This strengthens the case for the tax subsidies for donations.”
In an illuminating case study, the Pew report looks at what happened in Hawaii when the state government imposed a cap on the charitable giving tax deduction. According to Mallory Fujitani, of the Hawaii Department of Taxation, the state expected the move to generate about $12 million to the state treasury. Unfortunately, the move cost charities $50 million to $60 million in lost donations, according to Tim Delaney, President and CEO of the National Council of Nonprofits.
In other words, Hawaii found that for every new dollar of tax revenue it generated from the cap on the charitable giving deduction, charities lost five dollars!
David L. Thompson, Vice President of Public Policy at the National Council of Nonprofits, summarized the experience of the various states that have tinkered with the charitable giving deduction:
What we learned in the states is that the charitable deduction is not just a nice thing for taxpayers, it’s vital to the communities. All politicians from across the political spectrum have come to the same conclusion that we are hurting our communities by discouraging giving to charities.”
Given the crystal clear Pew report, the experiences of various states, and the findings of academic research studies, a number of important questions come to mind:
● Why do government officials and some pundits continue to advocate for reducing the tax deduction for charitable giving?
● Why does the Obama Administration continue to support a cap on charitable tax deductions that could cost the nonprofit sector as much as $5.6 billion per year?
● Why do so many nonprofit professionals fail to defend tax deductions for charitable giving?
The nonprofit community can no longer simply go along with government money grabs. We can no longer lie to ourselves by saying, “Donors will give us money anyway.”
We know better.
I’ve told you so before. Now, Pew is telling you. Tax deductions encourage charitable giving. Reducing or eliminating tax incentives for giving reduces giving.
That’s why we must defend tax deductions for charitable giving.
If nonprofit professionals do not energetically support tax incentives for charitable giving, the sector cannot expect others to take up the fight. It’s not about being selfish. It’s about making sure we have the necessary resources to benefit those we serve.
Here are five things you can do:
1. Monitor your state legislature and the US Congress for bills attacking charitable giving incentives.
2. Join your state’s nonprofit association and its government relations committee, if it has one. Join your local chapter of the Association of Fundraising Professionals and join its government relations committee, if it has one. If either does not have such a committee, start one.
3. If you see legislative action to cap or eliminate charitable giving incentives, write and call your elected representatives to defend the incentives. You can cite the Pew report when you do.
4. Involve your board members and encourage them to write and call their elected representatives. Remember, many of your largest donors are also the largest donors to the politicians in your community.
5. Develop an action plan before you need it.
That’s what Michael Rosen says… What do you say?