Testing their faith
Religious institutions wait to see what tax overhaul does to the charitable place in people’s budgets
The conventional thinking is that most people who donate to places of worship are not primarily motivated by tax benefits.
For many, giving is a core value based on religious teachings and a sense of gratitude.
This could be the year when those assumptions are put to a test.
The new federal tax law has cut taxes for working American families, but it also could have the unintended consequence of reducing the financial incentive for many people to donate to religious and charitable organizations.
The Indiana University Lilly Family School of Philanthropy estimates roughly 30 million households earning between $50,000 and $100,000 will be less likely to itemize deductions on their taxes due to the new law. With less incentive to donate, researchers predict the amount those households give will decline.
“Tax incentives do affect how much people give,” said Una Osili, associate dean for research. “If it is more expensive to give, they give less.”
Religious leaders hope those sorts of predictions don’t reflect the passion that members have for their institutions.
“It’s not about money. It’s about mission. If you focus on the ‘why’ and not the ‘what,’ people give generously from their depths,” said Patrick Joyce, director of stewardship for the Catholic Diocese of Pittsburgh.
“What motivates people is not tax deductibility.”
The new tax law nearly doubles the standard deduction — the amount that taxpayers are allowed to automatically subtract from their taxable income. The standard deduction for singles was raised to $12,000. For married couples who file jointly the amount was raised to $24,000.
That means people who used to itemize to reduce their tax bill will have no need to tell the IRS how much they gave — no need for those statements from the church office.
The Lilly Family School study found 83 percent of itemizers reported charitable giving, compared to 44 percent of non-itemizers.
With non-itemizers contributing less than 20 percent of total giving, moving an estimated 30 million households from the “itemizer” to the “non-itemizer” category could trigger an estimated $13 billion drop in annual charitable giving, the researchers predicted.
Ms. Osili said the kinds of charities that will be hurt are those that middle income households support, such as religious organizations, local charities and organizations that serve people’s basic needs.
Charities favored by the wealthy — the arts and institutions of higher learning — will likely be less impacted.
Charitable donations do still offer some tax savings for people who itemize their federal tax returns because they can claim deductions beyond the standard deductions. Donations often reduce a person’s tax bill by roughly 25 cents for every dollar, which is a significant tax break that comes with supporting a cause.
The Rev. Gary Dull, executive director of the Pennsylvania Pastors Network and board member of the American Pastors Network, said he believes the tax law will affect non-religious charities more than religious organizations.
“There are many people who give cash so that there is no record of what they give. They don’t want the government to know what they give and they are not interested in a tax deduction,” said Rev. Dull, who also is a pastor at Faith Baptist Church in Altoona.
He said the average gift from a churchgoer is about $10, $20 or $30 cash. He said the average gift to another organization he leads called The Way of Truth Ministries” is between $15 and $20.
“From studies I had done on this law, most churchgoers will receive an increase in their take-home pay, which will result in a greater opportunity for them to give,” he said. “We believe the lower tax rates will encourage churchgoers to give more.”
While religious organizations are supported by donations from members, much of the giving is done anonymously.
There is usually a locked box at the entrance to mosques where offers are discreetly dropped. In Buddhism, typical material offerings involve simple objects such as a lit candle or food, fruit, water or drinks. Many Jewish synagogues rely on a system of annual dues from members to meet the temple’s financial needs.
“As a pastor, I encourage people to give as a spiritual practice,” said the Rev. Libby Barlow, executive minister of Christian Associates of Southwest Pennsylvania. “Those gifts are a reflection of their gratitude to God and their commitment to our life together as a congregation.
“While the tax deduction may have had some effect on inspiring giving, it’s not the primary reason people give,” she said. “So I don’t think the change in the tax code will have a major impact on church giving. At least that is my hope. I might be overly optimistic.”
According to Giving USA 2017: The Annual Report on Philanthropy for the Year 2016, the largest share by far of the total $391.51 billion in charitable giving goes to religious organizations.
Giving to religious organizations amounted to 32 percent of all charitable giving in 2016 for a total of $122.94 billion. The next highest nonprofit sector was education, which received $59.77 billion in 2016.
Donations to the Catholic church have been lower in recent years, said Mr. Joyce at the Catholic Diocese of Pittsburgh. That’s mainly because attendance is lower, not because individual offerings have fallen off.
“Would we like to see the standard deduction to be raised even more? I’d say no,” he said. “I’d like to see the most people possible itemizing their deductions.
“It gives people a purpose to pause and reflect. They can ask themselves have they done what they should have done? Raising the standard deduction deprives people of doing an inventory of what they have given.”