After a bungled health care bill, tax reform is next up for Congress and President Donald Trump — and nonprofits are watching closely.
The White House tax blueprint could cause a multi-billion-dollar dent to nonprofits' bottom line, and a Republican House plan could be equally damaging. Neither scheme explicitly targets nonprofits, which account for about 10 percent of U.S. private sector employment. But experts and industry leaders are lobbying against two seemingly innocuous changes: caps on the amount taxpayers can write off, and any increase in the standard deduction.
"Both would be a sizable hit for not only the nonprofits but also the people that they're serving," said Tim Delaney, CEO of The National Council of Nonprofits. Delaney applauded the idea of simplifying the tax code but said it's vital for Americans to see the fine print first. "The devil is always in the details."
The detail in both the Trump and House plans that's keeping Delaney up at night is the standard deduction, or the dollar amount that lowers the income on which Americans are taxed.
On its face, a higher standard deduction is a win for the majority of taxpayers. Only 25 percent of Americans itemize anyway, according to the Urban Institute. It's simpler to go with the standard deduction — and if more money is available under that deduction, Delaney worries taxpayers may not feel motivated to save money by adding up charitable donations.
"The standard deduction increase will be a disguised assault on charitable giving in the name of tax simplification," Delaney said. "Charitable and philanthropic communities are instead coming together for a universal deduction for giving."
Another potentially negative effect on the sector is President Trump's suggested cap on the amount taxpayers can write off. Taxpayers who itemize pay only about 60 cents on the dollar when they give to churches, synagogues, domestic violence shelters, early childhood programs, and so on. President Trump's proposal would limit itemized all deductions to $100,000 for singles, and $200,000 for couples.
The American Enterprise Institute, an influential conservative think tank, simulated the effect of Trump's plan using millions of real tax returns through its "Open Source Policy Center's Tax-Calculator" and found that $17.6 billion in annual giving could evaporate under Trump's tax proposal.
AEI found that, among those who itemize, the average amount Americans write off is well below the limits of the White House's plan: $15,400 for single filers and $26,500 for married filers. Trump's plan would affect only 329,000 taxpayers, according to AEI. But that 1 percent is full of big spenders.
Gifts of more than $100 million or more totaled at least $3.3 billion in 2015, according to Giving USA's annual report.
If the tax incentive goes away, people will still undoubtedly give to charity, said Alex Brill, research fellow at AEI who published the findings. The AEI model accounts for it. But gifts from wealthy donors could decrease significantly.
"There's consensus that the tax break definitely matters. People are always going to quibble about the exact magnitude of the impact," Brill said, citing end- of- the- year giving as one example.
Source: Network for Good
December 29, 30, and 31 accounted for 11 percent of the year's total online giving last year, according to Network for Good's Digital Giving Index, which breaks down donations to more than 40,000 nonprofits. December 31 was the biggest "giving day."
December giving makes up about 30 percent of annual donations, according to the data.
Dara Royer, chief development and marketing officer at nonprofit Mercy Corps relies heavily on year-end donations. The Oregon-based humanitarian aid organization, which employs 5,000 people, raises up to 40 percent of total revenue for the year during the months of October to December.
Source: Network for Good
"It's certainly the season of giving, but tax incentives are most likely a factor as well," said Royer, adding that Mercy Corps had not yet planned for a downturn in giving based on tax reform.
Karen Beavor, CEO of the Georgia Center for Nonprofits, said there's no doubt kindness is an incentive. But tax incentives are a much-needed boost to the already strapped sector.
"Yes, people's goodwill and thoughtfulness around what they want to individually contribute to in their community matters," said Beavor, whose organization serves about 3,500 nonprofits in Georgia. "But I can tell you, when you get to filling out your tax forms, it's a strong motivator."
Private donations are increasingly important, especially as public funding for areas typically assisted by philanthropy dries up. The newest White House budget includes major cuts to the Department of Housing and Urban Development, the Department of Education, and the Department of Health and Human Services.
But Royer said any dip in private funding could have an even bigger negative impact. There's no restriction on where and how they can spend private donations.
"Anytime we want to do something innovative, it's often on the backs of the private and individual donor support," Royer said. "We call that unrestricted money 'magic money' because it's so critical to the work that we do."
Others are more optimistic about the effect of tax reform could have on the sector. A rising economic tide — should tax cuts create one — could theoretically kick back more money to donors, and lift nonprofits, according to conservative think tank The Heritage Foundation.
"If tax reform is done properly, there's growth that happens as a result," said Adam Michel, policy analyst at The Heritage Foundation. "When the economy is doing well, and people have more money in their pockets, they donate more."
For now, both tax plans remain very bare-bones. Republicans are aiming for a spring timeline to pass the House GOP plan, the panel's chairman, Kevin Brady, R-Texas, said.
The House Ways and Means Committee, which drafted the plan, said it "will develop options to ensure the tax code continues to encourage donations, while simplifying compliance and record-keeping and making the tax benefit effective and efficient."
Correction: This story has been updated to accurately reflect Adam Michel's name.