In the Wake of Tax Reform
Nonprofits Are Counting on Strong Economic Performance
Philantopic — The Philanthropy News Digest Blog
April 26, 2018
by Phil Hills, President & CEO, Senior Consultant & Principal, Marts & Lundy
As soon as the Tax Cuts and Jobs Act of 2017 was signed into law, companies, nonprofit organizations, individuals, and accountants began to scramble to determine what it meant for them. Coming at the end of an historic year for the stock market, the legislation was expected to further fuel the market’s dramatic rise — and it did, for a time. Whether the trend will continue through the end of 2018 remains to be seen.
One way or the other, one sector that will be affected is philanthropy. On its face, the near doubling of the standard deduction for individuals and couples means that significantly fewer filers will itemize their deductions, reducing an important incentive to give. We may not know the full impact on charitable giving for several years, but for 2018 and 2019 philanthropic organizations could certainly benefit from greater clarity with respect to the legislation and its provisions.
If the economic momentum we saw in 2017 continues through the end of 2018, it will be tough to argue that tax reform had nothing to do with stepped-up economic growth and strong fundraising results. The doubling of the standard deduction and the loss of the tax incentives that come with itemization undoubtedly will dampen giving by some households, but the overall economic gains will offset those losses. Furthermore, as corporations benefit from substantially lower tax rates and foundations’ endowments benefit from stock market gains, their grantmaking is likely to remain robust and even increase. So in this “high growth” scenario, philanthropy is likely to be unaffected.
If, the market stumbles, however, the old sayin that “a rising tide lifts all boats” will no longer apply, as predictions that changes to tax rates could end up concentrating most of the benefits at the top end of the income scale come to pass, resulting in widely uneven economic impacts across different sectors.