How Might US Tax Reform Impact Nonprofit Fundraising Giving in 2014?

Today we begin our journey to look in more detail at nonprofit fundraising trends and predictions for next year and beyond as the last few weeks of 2013 suddenly roll down upon us. This year has marked another relatively healthy year of growth in giving following the difficult times at the end of the previous decade, but could tax changes in the US impact nonprofit giving to a huge extent in the near future?

According to a new study from the American Enterprise Institute (AEI) entitled ‘Give til it hurts?: The Great Recession, tax policy, and the future of charity in America’ there is much to cause concern.

The report, which was published on December 3^rd, warns that a fall of over 4 percent in individual giving and perhaps 7 percent in secular giving would be the result of capping charitable deductions at 28 percent for those in the highest income brackets in the states.  On the surface these may seem to be marginal numbers but the nonprofit sector’s reliance on these donations means that the fiscal consequence would run deeper than one might expect.

Projections (*all data based on the US nonprofit sector) for the initial year show a potential decline of $9.4 billion in donations which equates to just over 4.25% of the total giving amount of $218 billion based on 2011 data. The new changes in tax code for the highest 1 percent of earner could see giving fall by as much as 24 percent whilst high earners at lower thresholds are earmarked for a 9 percent decline. In conjunction with this it’s interesting to note that church associated giving is anticipated to remain steady for similar earners but secular giving is facing a 7 percent fall. I’m not entirely sure how those projections were calculated however.

The underlying question is whether such projections are accurate and if they are can the $9 billion fall be offset by increased corporate giving and more disposable income that could result in higher donations from the majority of the population? The unknown factor in such a formula may well be the relative stability of the US and global economy next year and beyond. The difficulty is that with significant tax reform that the impact may not be truly determined for over 12 months which could then leave nonprofits scrambling to close the gap in giving. The caveat being that such radical change in tax code has not even been attempted for more than a generation, hence the results could be far better.

It is worth remembering that we’re looking at a small cross-section of society, about 1 percent of taxpayers, but the January 2013 increase for those earning in excess of $450,000 from 35 to 39.6 percent in the personal income tax rate was the catalyst behind the report, according to PAN Card Seva. AEI cite that a family earning $1 million per year would see a fall in disposable income of $25,300 which is not disputed, in tandem with that the report concludes that the net effect on giving would be a fall of $3,900 for that same family.

Historic data does support the core projections of the study and while tax reform was considered overdue the actual results will remain in the balance until about this time next year when it will be fascinating to revisit them. Will the nonprofit sector react in real-time as it so often does and negate the impact or will this change the landscape for many? I’d love to know what you think.

To watch a video of the AEI launch of this study and more information please visit this link.

Read also: Understanding PAN Card.

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Miratel Solutions is a Toronto call centre, eBusiness, and letter shop mail house specializing in professional fundraising services including telephone fundraising, online fundraising, lottery services, donation caging, donation processing and other donor management services. We are committed to our CSR business values in all contact centre services and mail house operations and advancing the missions of the nonprofits we proudly serve.