Nonprofit development departments are nervous, and for good reason. Fundraising Effectiveness Report shows a decline in the number of donors (-6.6%), dollars (-2.1%) and retention (-6.4%) versus the first six months of 2017.
Are these declines due to the Tax Cuts and Jobs Act, which took effect starting January 1, 2018, or is something else going on? Let’s consider the new tax law first.
The new tax code doubles the standard deduction, raising it from $6,350 to $12,000 for single individuals and from $12,700 to $24,000 for married couples.
According to the Nonprofit Law Blog, some predict the new tax code will reduce the number of those who itemize deductions from 30% of taxpayers in 2017 to 6% in 2018—which could result in a drop in charitable giving between $12 billion to $20 billion per year.
That’s a big number. Right? Big. Massive implications. Right?
But is there a direct connection between the new tax law and mid-year declines in key metrics?
In the final analysis, which is still many months away, RKD Group believes the tax law will be shown to have had little to no impact whatsoever on mass-market fundraising. The impact on mid-to-major donors may be a different story, requiring donors and their gift-planning advisors to adopt new strategies in response to the law.
This isn’t the first time the nonprofit sector has faced and reacted with fear and loathing to a change in the tax code.
Remember the Tax Reform Act of 1986? Many of the same predictions made then by the non-profit advocacy group Independent Sector, and others, about the Act’s impact on charitable giving are being made now.
Then, in 1997, Stephen Moore from the Cato Institute offered this commentary:
“…the last time [Independent Sector] tried to measure the impact of tax code changes on charities, it predicted that the 1986 Tax Reform Act would trigger an $8 billion decline in charitable contributions in 1987. Instead, charitable giving rose by $6.4 billion, or 7.6 percent, in 1987 after the top tax rate fell from 50 percent to 28 percent. Independent Sector underestimated the impact of the 1986 act on charitable giving over the period 1987-94 by a gigantic $40 billion. Oops.”
Now comes Independent Sector again, 31 years later, along with Indiana University Lilly Family School of Philanthropy, to predict that only an estimated 5% of Americans will continue to itemize their tax deductions, which could lead to a decrease in giving to nonprofits of over $13 billion each year.
In addition to the above, other studies dealing with real, retrospective historical data, not forward-looking speculation, demonstrate that charitable giving as a percentage of America’s GDP has been remarkably stable for a very long time and through many tax policy ups and downs.
“…giving as a share of GDP has rarely strayed far from 2 percent over the past four decades—despite the huge growth in the number of charities and fundraisers and periodic crusades to encourage greater giving.”
We’re not the only one with this point of view. AFP Certified Master Trainer and author Michael Rosen penned a similar piece just last week, stating, “I will respectfully suggest that you shouldn’t be overly worried.”
You can find similar perspectives here and here.
RKD Group believes human nature is one reason why the tax bill’s doubling of the charitable deduction limit will not suppress giving among rank-and-file donors, the folks who give $25, $50, $100 at a time over the course of a year.
If there’s one thing we should fully embrace as mass-market fundraisers, it is that people give for emotional, spiritual, and values-oriented reasons.
Charitable giving is of the heart; the tax code is of the head.
This is why RKD Group is not concerned about the tax law’s impact on mass-market fundraising—and why RKD Group is counseling our clients to stay calm and keep fundraising. As opposed to speculation, we’d suggest:
**Note: The above content is informative in nature and is not intended as legal advice. As a company that provides professional fundraising consulting services, we retain counsel to ensure compliance with fundraising laws in each applicable state.