Southern California, is on fire. The images blasted across every news service and channel have been seared into the nation’s collective consciousness. People fleeing the Thomas Fire in their cars, driving through a fiery hellscape. A young man clutching a wild rabbit to his chest after he rescued it from the flames. The jagged, broken bones of homes jutting upward, picked clean and discarded.
Organizations like United Way of Ventura County and the Red Cross mobilized quickly to try to relieve the suffering of survivors, sending volunteers and raising money for relief funds. Donations to the Ventura County Humane Society will help the nearly 100 animals there who need food, water and care. LA Kitchen, a nonprofit that is feeding the firefighters on the front lines, received a matching gift up to $500,000 to leverage more giving to support its work.
The labor done by private nonprofits to bolster government relief efforts has been a crucial feature of disaster response in 2017. This time next year, those organizations could find themselves strapped for the cash they need to help disaster victims.
Of the many provisions in the tax plan that Republicans are jamming through the congressional process there are two that experts believe will slash charitable giving even as projected cuts to social services will leave more people in need: changes to the standard deduction and the loosening of prohibitions on political speech.
The 2018 overall loss in charitable giving could range between $12.3 billion and $19.7 billion, or between a 4 and 6.5 percent reduction, nationwide, based on the analysis of the House plan.
“Essentially what I feel this tax bill is doing is diverting resources to wealthy taxpayers and therefore making fewer resources available for social services programs and low- and more-moderate-income Americans,” said Laura Pierce, executive director of Washington Nonprofits, an association that supports nonprofits.
The Tax Policy Center, a think tank, estimated that the 2018 overall loss in charitable giving could range between $12.3 billion and $19.7 billion, or between a 4 and 6.5 percent reduction, nationwide, based on the analysis of the House plan.
“This issue is so critical,” Pierce said.
Here’s how it works.
When individuals fill out their taxes, they can take deductions that reduce the amount of income that the government can tax.
One version is the “standard deduction,” which is a flat amount subtracted from your taxable income. Roughly 70 percent of people filing personal tax returns use this method.
The second involves “itemizing deductions.” There are a number of itemized deductions under the current tax code, of which charitable giving is one.
The House Republican plan increases the standard deduction to $12,200 for an individual, which means fewer people will need to itemize to minimize their tax burden. Experts believe that the number of itemizers will fall from 30 percent of individual filers to 4 percent.
In the 2015 tax year, 323,138 tax returns from King County residents took charitable deductions. Taxpayers gave $2.3 billion to nonprofits that year.
In the 2015 tax year, 323,138 tax returns from King County residents took charitable deductions. Taxpayers gave $2.3 billion to nonprofits that year.
Charitable giving would almost certainly decrease as the number of people who benefit from itemizing their deductions shrinks overnight. Those who continue to itemize will be at the upper end of the income strata, and the benefit they receive from doing so will be greater, said Greg White, a certified public accountant.
“They will almost certainly be more wealthy,” White said. “There’s no question about that.”
The second change involves the Johnson Amendment, a law that restricts nonprofits from endorsing candidates. Being perceived as partisan organizations hurts the work whether organizations opt to make endorsements or not, said David Streeter, director of public policy and advocacy with Washington Nonprofits.
A major donor could pressure a nonprofit into making a political endorsement. Alternatively, an endorsement — or the assumption of partisan preference — could cost organizations support.
“To have a partisan slant hinders our effectiveness,” Streeter said. “God forbid that we get into a situation where organizations are denied contracts because they endorse the wrong entity.”
Pierce sees another potential outcome — big donors could pass money through nonprofits, which would in turn use them for partisan purposes. It would effectively launder campaign contributions through nonprofits to make them anonymous.
“We want to keep our nonprofits out of the nastiness and divisiveness and toxicity of the current political landscape,” Pierce said.
The price of taxes
Some commentators observing the tax bill’s progression theorize that the bill does more than reduce taxes on wealthy people and corporations: It will change the role of government in the lives of its poorest citizens.
At present, the tax bill will cost $1.5 trillion. An estimate from the Joint Committee on Taxation, a nonpartisan government office, puts the total cost at roughly $1 trillion after assuming some additional revenues derived from economic growth.
The thing is, the federal government is still running under rules from a 2010 law meant to prevent the government from adding to the national debt. The tax bill’s costly price tag would force automatic spending cuts as those who benefit see their tax burdens stay flat or rise.
The result is a catch-22 for those who hold conservative views on taxation and the role of government. On the one hand, the plan embodies a long-held conservative belief that private charitable and voluntary organizations are better-suited to providing and maintaining the social safety net than government.
On the other, they are potentially starving those non-government groups of the funds that they need to do their work.
There is no world in which private philanthropy could make up the difference in funding should these across-the-board cuts go through, Pierce said.
“There are no wealthy donors waiting in the wings who can take this on if government abdicates its responsibilities.”
If the 10 largest foundations in the country liquidated their assets tomorrow, they could not cover the cut to the Supplemental Nutrition Assistance Program (SNAP or food stamps) alone, Pierce said.
“There are no wealthy donors waiting in the wings who can take this on if government abdicates its responsibilities,” Pierce said.
As politicians wrangle, trying to reconcile the House and Senate tax bills in conference committee, organizations like Washington Nonprofits are advocating for change. One policy position involves a “universal charitable deduction,” which would be available to all tax filers rather than just itemizers. Giving would dip slightly under that policy, but the effects would not be as devastating as the plan at present. The other is a fight for the soul of nonprofits to keep the Johnson Amendment intact.
In the meantime, White has some advice for taxpayers looking to maximize their benefits around charitable giving. If you are part of the 26 percent of itemizers who will end up taking the standard deduction on your 2018 taxes, give now. To that remaining 4 percent?
“I would advise those people who itemize in the future to put it off,” White said.
Ashley Archibald is a Staff Reporter covering local government, policy and equity. Have a story idea? She can be can reached at ashleya (at) realchangenews (dot) org. Twitter @AshleyA_RC
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