Don’t turn Scrooge un­der new tax code

Houston Chronicle Sunday - - BUSINESS - CHRIS TOM­LIN­SON

The tax code will test al­tru­ism this giv­ing sea­son, and char­i­ties should be wor­ried.

Pres­i­dent Don­ald Trump’s tax cuts slashed rates on busi­nesses and raised the stan­dard de­duc­tion for in­di­vid­u­als, dra­mat­i­cally re­duc­ing the ap­petite for de­duc­tions. With fewer tax ben­e­fits to be gained from char­i­ta­ble giv­ing, will com­pa­nies and in­di­vid­u­als still make do­na­tions? Or will char­i­ties feel a pinch?

Ex­perts are split. Some are ad­vis­ing non­prof­its to tighten their belts, while oth­ers pre­dict the strong econ­omy will make us more gen­er­ous.

My bet is that cor­po­rate giv­ing will go down. The Tax Cuts and Jobs Act of 2017 re­duced the of­fi­cial cor­po­rate tax rate from a max­i­mum of 35 per­cent down to 21 per­cent.

Com­pa­nies use de­duc­tions and cred­its to re­duce taxes as much as pos­si­ble. To take a tax de­duc­tion, though, a com­pany needs to have a sig­nif­i­cant tax bill. The new, lower rate re­duces the tax bur­den, and there­fore the ap­petite to make do­na­tions.

Char­i­ta­ble giv­ing is also a mar­ket­ing tool, but only when a man­age­ment team feels the need to get the com­pany’s name in front of the pub­lic. When profits are high, as they have been this year, ex­ec­u­tives of­ten cut mar­ket­ing bud­gets, ac­cord­ing to the an­nual Phi­lan­thropy Out­look, pro­duced by In­di­ana Uni­ver­sity.

“Cor­po­rate giv­ing may or may not in­crease; strong eco­nomic growth may not do enough to off­set the de­crease in tax in­cen­tives, par­tic­u­larly if over­all con­sumer sen­ti­ment is weak,” the re­port con­cludes based on a sce­nario that re­flects cur­rent eco­nomic con­di­tions.

Ex­perts will scour an­nual re­ports next year to de­ter­mine how cor­po­rate giv­ing re­acted to the tax code, but un­til then, we can only guess.

The Repub­li­can tax bill also dou­bled the stan­dard de­duc­tion for in­di­vid­u­als and mar­ried cou­ples, which means far fewer tax­pay­ers will need to item­ize de­duc­tions to min­i­mize their taxes. Since tax­pay­ers can only claim a de­duc­tion for a char­i­ta­ble gift on an item­ized tax re­turn, many Amer­i­cans will see no tax ad­van­tage to mak­ing do­na­tions this year.

In­di­vid­ual and fam­ily giv­ing

could drop by $13.1 bil­lion, and es­tates of the de­ceased could re­duce do­na­tions by $7 bil­lion, ac­cord­ing to Pa­trick Rooney, an econ­o­mist at In­di­ana Uni­ver­sity’s Lilly Fam­ily School of Phi­lan­thropy. His fore­cast, in sep­a­rate re­search from the Phi­lan­thropy Out­look, is based on giv­ing pat­terns ob­served af­ter past tax cuts.

Over­all giv­ing could drop 4.6 per­cent com­pared to 2016 when Amer­i­can gave a record $390 bil­lion, he con­cluded.

Per­haps mak­ing mat­ters worse, re­search at the Uni­ver­sity of Chicago shows a di­rect cor­re­la­tion be­tween char­i­ta­ble giv­ing and the S&P 500 stock in­dex. When stocks go up, so does giv­ing. Un­for­tu­nately, the S&P 500 is flat for the year and has spent much of it in neg­a­tive ter­ri­tory.

There­fore wealthy donors with sig­nif­i­cant stock hold­ings have not had a very good year, and they are the most sig­nif­i­cant pri­vate givers.

In ad­di­tion to pass­ing his tax bill, Pres­i­dent Don­ald Trump is also chang­ing donor be­hav­ior. Lib­eral ac­tivist or­ga­ni­za­tions have seen a spike in do­na­tions, while both po­lit­i­cal par­ties col­lected record amounts in this year’s elec­tion cam­paigns. Most con­tri­bu­tions to these groups are not tax-de­ductible, but they hint at a shift in donors’ pri­or­i­ties when bud­get­ing their giv­ing.

Nev­er­the­less, re­li­gious or­ga­ni­za­tions con­sis­tently bring in the most money, tal­ly­ing $122 bil­lion in 2016, ac­cord­ing to In­di­ana Uni­ver­sity re­searchers. Ed­u­ca­tion, hu­man ser­vices, foun­da­tions and health non­prof­its round out the top five.

Non­prof­its may also see dif­fer­ent re­sults based on their donor pro­files. At least 5 per­cent of high-in­come fam­i­lies will still need to file item­ized re­turns and claim char­i­ta­ble de­duc­tions next year.

“Or­ga­ni­za­tions more re­liant on smaller do­na­tions from less wealthy donors would have cause for con­cern, while non­prof­its that re­ceive fund­ing from high­net-worth in­di­vid­u­als/ house­holds would be bet­ter able to weather this change,” the Phi­lan­thropy Out­look ad­vises.

I should hope, though, that ev­ery­one’s char­i­ta­ble giv­ing will go up de­spite the change in the tax code. The econ­omy is strong, and tax cuts mean we have more money in our pock­ets. The re­cip­i­ents of our gen­eros­ity also need our help more than ever. Rents are more ex­pen­sive; wages are higher and run­ning a non­profit is not get­ting any cheaper.

There is also plenty of need. Whether it is sick chil­dren or the arts, our gov­ern­ments are stingy in ad­dress­ing so­ci­ety’s prob­lems and en­rich­ing our cul­ture. If we don’t want the gov­ern­ment de­cid­ing how to spend our money, we must at least take re­spon­si­bil­ity and make do­na­tions of our own if we want a bet­ter world.

The im­pe­tus to give, af­ter all, should al­ways come from our hearts, not from our tax ac­coun­tants.

Michael Ho­la­han / As­so­ci­ated Press

With fewer tax ben­e­fits to be gained, char­i­ta­ble giv­ing is ex­pected to take a big dip.

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