Posts tagged ‘Patrick Rooney’

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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June 16, 2015

Strong American Philanthropy at a Record High!

Americans donated an estimated $358.38 billion in 2014, surpassing the peak last seen before the Great Recession, according to the 60th anniversary edition of Giving USA, released today. That overall total slightly exceeds the benchmark year of 2007, when giving hit an estimated inflation-adjusted total of $355.17 billion. However, Individual giving has yet to recover fully.

The 2014 philanthropy total increased by 5.4 percent, when inflation adjusted, over the revised estimate of $339.94 billion that Americans donated in 2013. Giving has grown for each of the previous five years. The growth in 2014 significantly outpaces the average growth rate of 3.4 percent (inflation adjusted) during the past five-year period.

All four sources of contributions that comprise total giving increased in 2014:

  • Individuals (72 percent of the total, 4 percent inflation-adjusted increase)
  • Corporations (5 percent of the total, 11.9 percent inflation-adjusted increase)
  • Foundations (15 percent of the total, 8.2 percent inflation-adjusted increase)
  • Bequests (8 percent of the total, 13.6 inflation-adjusted increase)

Giving USA 8.5 x 11 Infographic“The 60 year high for total giving is a great story about resilience and perseverance,” says W. Keith Curtis, Chairman of the Giving USA Foundation and President of The Curtis Group. “It’s also interesting to consider that growth was across the board, even though criteria used to make decisions about giving differ for each source.”

When combining the Individual and Bequest numbers, we see that individuals contributed 80 percent of all dollars given to charity in 2014. If we include family foundation giving, individual philanthropy accounted for 87 percent of all dollars given in 2014, according to Patrick Rooney, PhD, Associate Dean for Academic Affairs and Research at the Indiana University Lilly Family School of Philanthropy. Large Individual gifts of $200 million or more accounted for a significant portion of the overall growth in Individual giving while the actual number of gifts over $1 million has decreased.

“We saw several very large gifts greater than $200 million — a few were greater than $500 million and one was nearly $2 billion — in 2014,” says Rooney. “The majority of these mega-gifts were given by relatively young tech entrepreneurs.”

Looking at the nine gift recipient categories, all but one saw an increase in giving:

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June 19, 2013

What You Really Need to Know about Giving USA 2013

Philanthropic giving in the USA increased for the third straight year in 2012, but only modestly.

Overall giving in 2012 totaled $316.23 billion, an increase in current dollars of 3.5 percent over 2011. Adjusted for inflation, the increase is just 1.5 percent. That’s the finding presented in Giving USA 2013, the report researched and written by the Indiana University Lilly Family School of Philanthropy and just released by the Giving USA Foundation™.

Click the photo to get a free copy of Giving USA Highlights.

Click the photo to get a free copy of Giving USA Highlights.

I had a chance to sit down and talk with Dr. Patrick M. Rooney, Associate Dean for Academic Affairs and Research at the Lilly Family School of Philanthropy. He asserts that, at current growth rates, it would take at least six years for a return to pre-recession giving when adjusted for inflation. He anticipates growth will indeed continue to be slow since the overall economic recovery is slow.

For more than half-a-century, giving has hovered at two percent of Gross Domestic Product. When GDP grows strongly, giving is robust. When GDP growth is sluggish, so is philanthropy. With many economists predicting 2013 GDP growth of just 1.9 percent, Rooney’s prediction seems entirely reasonable.

Here are some highlights from the report:

–2012 saw marked year-over-year growth in corporate giving (12.2 percent in current dollars), which is strongly linked to companies’ profits. For 2012, corporate pre-tax profits surged upward 16.6 percent, according to the Bureau of Economic Analysis.

–Uncertainty fueled by mixed economic indicators may have moderated giving by individuals, who historically account for the largest percentage of total giving. Positive trends, such as the 13.4 percent increase in the Standard and Poor’s 500 Index between 2011 and 2012, the slight rise in home values, and overall lower unemployment rates and fuel costs, were combined with budget concerns and tax reform discussions. In addition, personal disposable income rose 3.3 percent and personal consumption expenditures rose 3.6 percent last year, virtually mirroring the growth in individual giving (3.9 percent in current dollars).

–Giving by individuals rose to $228.93 billion in 2012, an estimated 3.9 percent increase (1.9 percent adjusted for inflation). Income and wealth are key drivers of household giving, as is a sense of financial security. Giving by taxpayers who itemize their gifts represented 81 percent of the total donated by individuals in 2012.

–Giving by bequest decreased an estimated 7.0 percent in 2012 (8.9 percent adjusted for inflation) to $23.41 billion. Itemizing estates contributed 78 percent of the total, or $18.31 billion. Bequest giving tends to be volatile from year to year, as it is highly influenced by very large gifts from estates that closed during that year. For example, Rooney explains that if we remove one exceptionally large bequest from the 2011 numbers, we find that bequest giving was close to the same in 2012 and 2011 when adjusted for inflation. So, the big dip in 2012 should not set off alarm bells. With real estate values and stock portfolios rebounding, the future for bequest giving is encouraging.

–Giving by corporations rose 12.2 percent in 2012 (9.9 percent adjusted for inflation), to an estimated $18.15 billion, including gifts from both corporations and their foundations. The two entities provide cash, in-kind donations and grants. Increasing the 2012 total was the estimated $131 million corporations gave to nonprofits working on relief efforts in the aftermath of Hurricane Sandy.

–Giving by foundations increased 4.4 percent (2.3 percent adjusted for inflation) to an estimated $45.74 billion in 2012, according to figures provided by the Foundation Center. Giving by community foundations grew 9.1 percent last year, which helped to bolster the total. Operating and independent foundations increased grant making by 3.5 percent and 3.9 percent, respectively. While stock values increased in 2012, foundations often use a multi-year rolling average when valuing their portfolios. Therefore, as stock values continue to climb, we should see stronger future growth in foundation giving.

–Looking at foundation giving, 45 percent comes from family foundations where a member of the family continues to be actively involved in running the foundation. In a sense, these organizations blur the line between foundation and individual giving. Giving by family foundations can often be very relationship driven as with individual giving.

While the data provides a number of interesting insights about the charitable behavior of Americans, it also hints at serious warnings, according to a panel of experts that gathered in Philadelphia to present the Giving USA findings. The panelists included Jon Biedermann, Vice President of DonorPerfect; Robert Evans, Founder and Managing Director of The EHL Consulting Group; Eileen R. Heisman, ACFRE, President and CEO of the National Philanthropic Trust; and Rooney. Here are their warnings:

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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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