Posts tagged ‘foundation giving’

January 5, 2018

How Bad is the New Tax Code for Your Charity?

If you’ve been reading the mainstream press, or even some of the industry media, you might believe that the future is all doom and gloom for charitable giving thanks to the Tax Cut and Jobs Act. But, how bad will things really be for you and your nonprofit organization?

As a former newspaper editor, I know that the media lives by the axiom: If it bleeds, it leads. In other words, negativity attracts readers and viewers, which in turn attracts advertising dollars. So, it’s no surprise that the media have put the new tax code in the most negative light when it comes to charitable giving.

Fortunately, reality is something quite a bit different. Let me explain, using figures from 2016 (the most current numbers available).

Overall, charitable giving totaled $390.05 billion. US Gross Domestic Product totaled $18.6 trillion. Therefore, total philanthropy in 2016 equaled 2.1 percent of GDP.

As a result of the new tax code, charitable giving could decline by approximately $21 billion, according to Patrick Rooney, PhD, Executive Associate Dean for Academic Programs and Professor of Economics and Philanthropic Studies at Indiana University-Purdue University.

However, is that number accurate? Unfortunately, we have no way of truly knowing as Rooney himself states.

For example, the estimated philanthropic decline of $21 billion does not take into account the impact of a likely increase in Gross Domestic Product.

Because philanthropy closely correlates to GDP at the rate of approximately two percent, we can expect a rise in GDP to result in a rise in giving.

So, how much will GDP rise? Again, no one knows for certain. The estimates vary greatly from 0.08 to 0.35 percentage points. The Tax Foundation provided the latter estimate. Applying that percentage to the 2016 GDP, we would see GDP increase by $651 billion. If two percent of that increase goes to charitable giving, that would be approximately $13 billion. So, Rooney’s prediction of a $21 billion decline in philanthropy could be mitigated partially by GDP growth resulting in just an $8 billion drop in giving. However, even that number could be further offset by growth in foundation giving resulting from robust growth in the stock market.

Simply put, the new tax code could increase GDP and stock values leading to more charitable giving that could, at least partially, offset any potential decline in giving resulting from the new tax policy.

For the sake of discussion, however, let’s assume a $21 billion drop in giving, as Rooney outlined. That would take philanthropy as a percentage of GDP from 2.1 percent to 1.9 percent, using 2016 numbers. This is still within the 40+ year historical range.

The bottom line is that the new tax law could result in a decline in charitable giving. However, we don’t know for certain if that will be the case and, if it is, how much the dip will be. Even if there is a dip, giving will still remain at historically typical levels, around two percent of GDP. Furthermore, there is the possibility that the pundits are mistaken and that charitable giving will actually increase. Time will tell.

While the new tax code may change how and when people donate, history teaches us that changes in the tax code have only a short-term impact on the amount of giving though the methods and timing may vary. For example, the Reagan tax cuts resulted in greater year-end giving in 1986 before giving normalized thereafter. Furthermore, while a dip of billions of dollars is a big number, the reality is that it is not massive in the context of overall philanthropy.

Here are some of the relevant items you need to know from the 500+ page Tax Cut and Jobs Act signed into law on December 22, 2017 by President Donald Trump:

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January 17, 2017

Philanthropy Will Increase in 2017 and 2018

When it comes to philanthropy, I have some excellent news to share.

In 2017 and 2018, charitable giving will grow faster than the annualized average for the past ten years, according to a new report researched by the Indiana University Lilly Family School of Philanthropy and presented by Marts & Lundy. Based on careful economic modeling, the new study supports the hopeful assessment I made at the close of last year.

The report predicts that overall giving will increase by 3.6 percent in 2017 and 3.8 percent in 2018, when looking at inflation-adjusted dollars.

Amir Pasic, PhD, the Eugene R. Tempel Dean of the School of Philanthropy, says:

philanthropy-outlook-2017-2018Continued growth in the overall economy will lead to a rise in philanthropic giving this year and next. Our research indicates that all types of donors — individuals, foundations, corporations and estates — are likely to increase their giving in each of the next two years. Nonprofit organizations and the people they serve can find encouragement in the anticipated expansion of giving.”

While the report predicts 2017 and 2018 giving will exceed the most recent ten-year annualized average increase in giving of 0.5 percent, the average rate of growth will be below the most recent 25-year (4.4 percent) and 40-year (4.9 percent) annualized averages. So, while the forecast is definitely good, it’s not necessarily great.

Three of the leading economic factors that will influence the rate of growth in charitable giving are:

  1. Stock value growth.
  2. Gross Domestic Product growth.
  3. Household Income growth.

All three of those areas are likely to increase over the next two years. In turn, this will result in an increase of giving across all donor types:

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June 22, 2012

Giving USA 2012 Released, Donations Up Slightly

Total philanthropic giving in 2011 was $298.42 billion, up from a revised estimate of $286.91 billion for 2010.

That’s the finding presented in Giving USA 2012, the report just released by The Giving USA Foundation and its research partner, the Indiana University Center on Philanthropy.

While the uptick of 4.0 percent in giving in current dollars is positive news, it represents an increase of just 0.9 percent in inflation-adjusted dollars. At this rate of growth, it will take more than a decade for giving to return to its pre-recession 2007 level, according to Patrick M. Rooney, Ph.D., Executive Director of the Center on Philanthropy. Rooney was in Philadelphia to present the major findings of the report. Rooney stated:

The estimates for giving in 2011 are encouraging, but they demonstrate that charities still face ongoing challenges. In the past two years, charitable giving has experienced its second slowest recovery following any recession since 1971.”

Giving in 2012 and 2013 is likely to experience the same slow growth as we saw in 2011. On the same day that Rooney was in Philadelphia, the U.S. Federal Reserve issued its multi-year forecast of change in Gross Domestic Product. The Fed projects GDP will continue to grow at a modest rate. For 2012, the projected GDP growth rate is 2.2 percent. For 2013, the Fed projects GDP growth of 2.5 percent. This is important news for all Americans, particularly those in the nonprofit sector.

In 2011, giving was 2 percent of GDP. Since giving has been tracked, philanthropy has always been about 2 percent of GDP. If this correlation rate continues, the nonprofit sector can expect continued slow growth in philanthropy in 2012 and 2013 as GDP is projected to grow only modestly.

Once again, the majority of philanthropic dollars came from Individuals, who accounted for 73 percent of total giving, the same percentage as the prior year. If Bequest and Family Foundation giving is included, the percentage would be 88 percent.

Individual giving as a percentage of disposable personal income remained at 1.9 percent in 2011, the same as in 2009 and 2010; this is far below the high of 2.4 percent achieved in 2005.

The report estimates estate giving at $24.41 billion in 2011, a 12.2 percent increase over 2010 (8.8 percent increase in inflation-adjusted dollars). Bequest giving represented 8 percent of total giving. Two-thirds of Americans with a will have included a charitable bequest provision, according to Robert I. Evans, Founder and Managing Director of EHL Consulting Group, who co-presented with Rooney. Fluctuations in bequest giving in recent years are primarily due to the major changes in real estate and stock portfolio values. Rooney also observed that the 300 wealthiest deceased individuals determine whether bequest giving goes up or down.

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