VIEWPOINTS: New tax code is harsh on nonprofits. How Texans can help

Updated Jan 12, 2018
  • By Editorial Board
Jay Janner
Manos de Cristo, an Austin nonprofit organization, distributes clothes, books and backpacks at the Allan Early Childhood Center in 2017.

When local, state and federal programs fail to serve Central Texas families and individuals who are the most in need, local nonprofit organizations help fill the gaps by using the generous contributions of those who find value in giving their neighbors a hand up when they need it. The recent federal tax overhaul, however, has nonprofits bracing for a significant decline in contributions because millions of people are expected to lose incentives to give.

The law, according to estimates from the Indiana University Lilly Family School of Philanthropy, will decrease charitable giving to nonprofits by at least $13 billion, or 4.5 percent. Smaller local nonprofits and churches could get hit the hardest.

That’s troubling because charitable donations by individuals are vital to the sustainability of a nonprofit organization. Through donations, local groups help feed the hungry, shelter the homeless and open doors of opportunity. They respond to disasters like Hurricane Harvey, which devastated the Gulf Coast and vast swaths of Southeast Texas, and provide services to the sick and the poor.

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“There will be (taxpayer) confusion. Donations will be down the first quarter of the year because people won’t know the real impact of the overall changes,” said Stacy Ehrlich, founder of Seeds for Change Consulting in Austin. “Confusion quickly becomes doubt — and that doubt becomes inertia.”

Now is not the time to slow down giving — not when government programs and services are being reduced. The role of local nonprofits — there are more than 900,000 in Texas alone — is more important than ever before. They need our continued support.

Traditionally, tax credits have encouraged philanthropists big and small to give. In 2017, American generosity translated to more than $390 billion in donations to U.S. charities, according to the annual Giving USA report.

That’s a lot of money, but a closer look reveals reasons for concern: Itemized charitable tax deductions from donors making $100,000 or more a year increased by 40 percent from 2005 to 2015, according to the Institute for Policy Studies. Yet, deductions during the same 10-year period from middle-income donors making less than $100,000 a year declined by 34 percent.

The trend is reason for concern because wealthy donors – who make up a small fraction of the country’s population — tend to give to larger charities and foundations. Smaller nonprofits rely on contributions from average, working-class citizens to stay afloat.

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Receiving credit for supporting good causes is one reason why charitable contributions are among the most popular deductions that taxpayers report on their returns. The credit motivated many Americans to keep track of donations they made throughout the year to later report, or itemize, when they filed their return.

Though the new tax law simplifies the need for itemization, it could spell trouble for nonprofits.

Consider that the new law nearly doubles standard deductions for 2019 tax filings, from $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for married couples. Taxpayers can only deduct charitable donations if they itemize. But under the new law, millions of people won’t have total deductions exceeding the new standards. For them, itemizing won’t make sense when they file next year.

A new estate tax exemption could also cause problems. Prior to the new tax code, as large portions of their estates were taxed, wealthy individuals were encouraged to make charitable donations in part because donations were not taxed.

Under the new tax reform law, the new estate exemption changes the game for the wealthiest Americans, who could give less to charities — up to $7.8 billion less by 2024, by one study’s account — and instead give much more to their heirs, experts say.

Donations from middle-income earners could also decrease, analysts say, because the new law sets a $10,000 cap on the deductible limit for state and local incomes, and sales and property taxes. In Texas — which has no state income tax but higher property taxes than the national average — the cap could mean a tax increase on high-income taxpayers with pricey homes.

Local philanthropic groups won’t know for some time the impact tax reform will have, but Central Texans should provide reassurance.

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We encourage you to find a local organization that focuses on the causes that are important to you. Identify groups that make our communities stronger and find out what you can do to help. There are plenty here who fight the good fight.

Thousands of people with disadvantages count on nonprofits — and they are counting on us. Let’s send them the message through our donations that Congress may have given little thought to how our local safety nets will be affected by the tax overhaul – but Texans won’t turn a blind eye.