Since I ended my piece yesterday the doom and gloom note of the existential threat to all philanthropy, this is an odd, or at least paradoxical,  piece to write.  But there’s some counterbalancing evidence that we may not be peering into the abyss created by the new tax cut law.

Hope #1 is that donors will wend their way around the changes to the tax laws.  As water seeks cracks, so money seeks loopholes.  One such loophole (definition: something someone else uses to avoid taxes) involves the use of donor-advised funds.  The day after the tax bill passed, the New York Times reported on using this strategy combined with so-called bunching of donations:

“Someone could ‘bunch’ several years of donations to a donor-advised fund into one year, and take the tax deduction, but then have the fund pay out the gift annually in equal amounts.  The charity would get the same amount each year, even in years when the donor did not itemize deductions.”

In fact, by donating appreciated stock to a donor-advised fund, you can double your tax savings.

There are some issues with this.  Leaving aside the concerns of philanthropy being only a rich person’s sport discussed yesterday, there’s actually no requirement for these funds to paid to charity on any timetable.  Thus, dollars intended to clothe, feed, save, cure, fight, and succor could instead be parked in a mutual fund indefinitely, as $85 billion currently is.

But, for the donors using these funds as intended, it is a way to get more bang for your charitable buck.

Hope #2 is that we aren’t hearing comments from donors about the tax law change.  Of 3000 comments to a major US nonprofit at the end of 2017 through DonorVoice feedback solutions, six people talked about the changes.  Four said they wanted their gifts to count for 2017 because of the tax changes; one said they’ll continue donating despite the changes;  and one said the amount was probably because of the tax changes (but didn’t say whether that was up or down).  Hardly a mass exodus.

This was unprompted feedback; what about feedback specific to the tax law from donors?  Here we are indebted to M+R for running a public opinion survey on this.  Their details are here and well worth a read.  A few highlights:

• Overarchingly, I’d agree with the proviso they put forth at the beginning of their analysis:
  

  “And, it’s important to note here that what people say is often not what they do. So, while we’re paying attention to what we learned in our research, we can all agree that the best information about the impact of the tax law will come when we look back on our 2018 fundraising results next year.”

  So get our your grains of salt.

• For 2017, most donors said the tax bill didn’t change their giving (53%). Twenty-seven percent said it had increased; nine percent said it decreased.
• For 2018, most donors said it won’t change their giving (51%). Thirty percent said it will increase their giving; nine percent said it would decrease.

So donors aren’t saying their giving will change much in 2018 compared to 2017.  As Yogi Berra put it, it’s difficult to make predictions, especially about the future.  But, in our case it’s better to see these results than more negative prognostications.

Hope #3 is that we aren’t seeing evidence of decreased giving so far.  To continue with M+R’s data, they looked at organizations that hadn’t been impacted by Trump or disasters (some would argue I could say disasters and leave it at that).  Of the seven, six had January 2018 results that surpassed their January 2017 results.  So that, also, is good news.

And Hope #4 is that the people who are most impacted by these changes also got a tax cut.  The change in itemization will largely impact donors in the $50,000 to $400,000 annual income range; as you can see at right, from the Tax Foundation, they are the people currently itemizing who likely won’t do so anymore.

While this may cool their charitable ardor, they may have more take-home pay with which to give.  The tax rates for $165K to $315K in income went from 28-33% to 24%.  Assuming no alternative minimum tax, these donors will have $7-15K more in income this year than last.  Presumably, this is “found” money than could be used to increase charitable giving (or not ).

There are donors from states with high state tax rates, which are no longer deductible, to whom this won’t apply, but it could be an impact for many in the $100K-$400K bracket who are most impacted by the changes in itemization.

In the balance of these two positions, I’m persuaded to take a wait-and-see approach to the amount that will be given to nonprofits.  I feel like it may be more of a downslope than a cliff, as increases in revenue help buoy things early on, but fade in the long-term, and perceptions of tax-deductibility change over time.

I’m also concerned about where philanthropy will come from going forward, given there’s every incentive for us to use the Willie Sutton rule and go after major donors, because that’s where the money is.

But beyond this, what do we do because of these changes?  That topic, tomorrow.

Nick