Funding

Jan. 9, 2018 12:41 pm

‘Nonprofits need to rally quickly’ to stave off the worst effects of the new tax law

With the passage of the federal Tax Cuts and Jobs Act, nonprofits should be prepared to engage in policy advocacy, especially at the state and local level.

The American flag flies near the Free Library of Philadelphia.

(Photo by Clever Girl Photography)

After threats of repeal from the federal government, the Johnson Amendment is safe.

It’s good news for advocates of the provision, which keeps nonprofits nonpartisan by preventing them from endorsing political candidates. But there are other battles ahead: With the passage of the federal Tax Cuts and Jobs Act, nonprofits should be prepared to engage in policy advocacy, especially at the state and local level, said Tim Delaney, president and CEO of the National Council of Nonprofits.

The new tax law, signed on Dec. 22, could deliver a financial bruising to nonprofits. In May 2017, researchers at the Indiana University Lilly Family School of Philanthropy said that the proposed tax policies could reduce charitable giving by up to $13.1 billion.

This loss is projected to occur because of the doubling of the standard deduction that taxpayers get, to $12,000 for individuals and $24,000 for couples. With more attractive standard deductions, taxpayers are less likely to itemize their taxes — and charitable deductions are only available when you itemize your taxes.

It’s not that people will stop giving, it’s just that they won’t be incentivized to give as much, Delaney said. And there will be very real consequences from this shortfall.

“Instead of giving $500 to those organizations, you only give $400. You believe in the mission, but you’re not really incentivized to give more,” Delaney said. “With that $100 shortage to the food bank, that means there’s going to be 20 people tonight who don’t eat.”

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The downturn in donations is likely to disproportionately affect human-services or local nonprofits, as wealthy individuals tend to give more to larger institutions, such as universities or hospitals.

Anne Gingerich, executive director of the Pennsylvania Association of Nonprofits, also sees a potential impact on smaller-time donors.

According to Gingerich, in 2014 in Pennsylvania, 33 percent of individuals donors who itemized had incomes less than $200,000 and 8 percent had incomes under $50,000.

“They’re very generous people who may or may not be able to afford to give,” she said. “It’s really sad because people give because they care and then if they know they’re going to get a bit of a tax break that can help incentivize giving as well.”

Another stressor on nonprofits from this act may involve the legislation’s curtailing of the Obamacare individual mandate.

“What we believe will happen with that is that more people will turn to organizations in the nonprofit community to receive services when their insurance runs out or they find themselves in dire straits,” Gingerich said. “So the demand for services will go up while yet another source of funding will be reduced because of the fact that fewer people will be able to itemize.”

Looking forward at next steps for nonprofit advocacy related to the fallout from this bill, Delaney said nonprofits could see “major threats” coming from the state level and, in turn, the local level.

“So if in Pennsylvania, for example, the legislature is re-writing its tax code, or is recognizing that there is going to be significantly less revenues, it will then have to cut spending, and cut their revenue share,” Delaney said, “and so then the localities will start screaming, saying we’re not getting the resources we need.”

As in most policy battles, nonprofits could emerge as “winners or losers” in this political climate, and thus face real consequences for the people and causes they serve.

Delaney’s recommendation for nonprofits in 2018? Unite: “Nonprofits need to rally quickly so that we are seen by the legislature as the force that we can be, should be, must be.”

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