Field Notes in Philanthropy: Tax Cuts and Giving
Episode 6: Tax Cuts and Giving
If you’ve ever donated to a nonprofit, you know the power of the charitable tax deduction. You’re reminded in every year-end appeal, and every handwritten receipt you get for donating those “gently used” clothes and housewares.
Nonprofits have long depended on tax incentives to encourage giving, but with the doubling of the Standard Deduction under the Tax Cuts and Jobs Act, will that incentive go away? And does it matter anyway?
In this episode, Dr. Philip Knight, Executive Director of the Food Bank Council of Michigan, and Allison Grayson, Director of Policy Development and Analysis at Independent Sector, help us look to history and speculate about the future to uncover the role of state and federal tax incentives on donor dollars.
PC: You're listening to Field Notes in Philanthropy. I'm Patrick Center.
TM: I'm Tory Martin.
TM: I'm Matthew Downey.
TM: So this issue of how the charitable tax deduction effects giving really dominates the sector right now. And in Michigan, these conversations have been really tied to the Michigan tax credit, uh, which was in place in the state of Michigan up until about 2011. And as we're getting into this new tax year now and this sort of new tax environment of the Tax Cuts and Jobs Act, we're really trying to figure out what this all means for us. Projections are that the number of Americans who itemize their taxes is going to fall significantly from about 30 percent down to about 10 percent.
And the charitable tax deduction, while it hasn't gone away, is really likely only going to affect that many fewer Americans now because so many fewer Americans are going to be taking advantage of it. So what we're rapidly discovering as we try to figure out what all of this means, how it's all going to play out, is really that this little mechanism, this little charitable tax deduction, um, is really surrounded by a whole atmosphere, a whole galaxy of other issues that are affecting giving and affecting nonprofit capacity across the country. So we really thought that we should start with: what is the difference between a tax deduction and a tax credit?
MD: So a tax credit, just to be clear, is that when you, ya know, reduce your tax li-… liability dollar for dollar. So that means if you have a $1000 tax credit, it saves you $1000 on your taxes. However, a tax deduction lowers the amount of your taxable income that you owe. So kind of a little bit better, obviously. Credits are a little better than deductions perhaps.
PC: Mhhm, let's remember that. I better talk to my accountant.
PC, TM, MD: [Laughter]
PC: But this impacts so many areas, this conversation. And our guests are fantastic. I mean, stick around for this entire podcast to the very end. I guarantee you, you're going to learn something today. But we're talking about the impacts on giving, the relationships that are impacted by the tax changes here and how legislation and politics are all interwoven into this. So let's kick it off with Dr. Philip Knight, President and CEO at Food Bank Council of Michigan. Food Banks were one of the organization types that was explicitly included under the Michigan tax credit when it existed. Phil, welcome to the show.
PK: My pleasure to be with you guys.
PC: Can you tell us a little bit about where the Michigan tax credit program came from in the first place?
PK: Sure. So out of great trials and tribulations comes great need, and, and then of course, comes great answers. And back during the recession, the great recession throughout Michigan, there were efforts to try to encourage our community to kind of help pick up the slack for people that were suffering from the effects of the recession. And so the Michigan tax credit was born, really out of a need that was brought on by the, by the recession, kind of in the middle of everybody trying to tighten their belts and, and make it through that hard time.
MD: And so, you know, from research, we know that there are certain types of nonprofits that tend to be more sensitive to tax incentives through giving. And just wondering, what happened to your organization and organizations like yours when that credit went away in 2011. Did you see any drastic changes in donations?
PK: So, I think it's a really a compliment to the type and the quality of individuals we have here in Michigan because we didn't see a tremendous drop in charitable giving to the food banks. And I think it's because of the, that hunger is such a basic need and food insecurity is such, people live under such tremendous toxic stress, that people wanted to help and they did help. And so charitable tax credits and deductions and all those things really come in a few layers down from "I just want to help people because I know somebody who's hungry. I know kids that are hungry, I don't seniors that are hungry, I'd faced hunger myself." I, so, there's a lot of reasons before we get to the financial/economic impact of the tax credit, but again, I think there's a tribute to the quality of people that we have in our state.
TM: So of course there's been a great deal of conversation in the wake of the passage of the Tax Cuts and Jobs Act that charitable giving is going to drastically decline now given that far fewer Americans are likely to take advantage of the charitable tax deduction. Now to be clear, of course the tax deduction has not actually gone away for charitable giving, but because there are going to be so many fewer people likely itemizing because the individual deduction in the joint filer deductions have gone up so much, we're expecting to see a pretty significant decline. But you, we're in the middle of this conversation with you particularly about a pretty basic need. I mean food needs, food necessity in families and in particular communities. That's not going to disappear one way or another. So are you worried that the Tax Cuts and Jobs Act is actually going to have much impact on your organization or, or is that not really as big a concern for you guys?
PK: So I think that in the short term when we're talking about emergency food, it's not as big of a concern. People are going to give to help their hungry neighbors. Right?
PK: But if we're talking about addressing some of the root causes and systemic efforts to solve hunger and create food security, that takes a longer time, then I think that's where it's going to come because longer term gifts that normally come through some of our community foundations to help establish these works and pilots – that are going to take a while for us to learn what we don't know. I think that's where it's gonna effect. And so we do have concerns about that.
MD: So is there an element of retrenching then with, in terms of how you position this with policymakers in the argument that's made, to have a more holistic response down the line? Um, and sort of do advocacy and lobbying on that front now?
PK: Yeah. So I, that's a great way to put it. The retrenching just fits in my mind very well because again, if we're addressing a crisis need, then you've got to have a crisis response to that and that certainly is hunger. And you're hungry, you only have one problem, you know, “what am I gonna eat today and what am I going to give my kids?” But if you're talking about addressing food insecurity, that's much more a systemic problem. And so one of the questions we get asked a lot is, "How come it's not any better?" I mean we've got really low unemployment in the state of Michigan, but yet we delivered more food than we ever have in our history and that was like 181 million pounds across the state last year. And so I think the disconnect is, 37 years ago, then President Reagan said that the best social program is a job. Well, there's a disconnect from that time until this, regarding full time employment and food security. What existed 37 years ago, if you had a job, then you were, you were food secure. Today, there's the disconnect. Over 50 percent of the people who come to us to get food, are employed.
TM: Wow, that's pretty, um, that's a pretty stunning number because of course that is the kind of data point that not everyone knows and is reacting to when they think about where to give their money, whether or not they support particular programs. And it seems to fit into this sort of tax conversation about the data. I don't know, I wonder about how that kind of thinking…that there is…there is policy around food programming, around job programming, and development and training. There is separate federal, state, local policy around providing food in necessary situations. And then there's this tax policy piece and all three of them, I'm curious if all three of them, are getting to talk to each other or whether that, that…Is that happening, yes or no? Ya know?
PK: [Laughter] Yeah, I wish it was happening. So, it's kind of like the Bermuda Triangle for poor people. I mean you got the President's budget proposal that wanted to cut over $800 million from the SNAP food stamp benefit. Now you have the farm bill that’s out that you know came out from a Representative [Mike] Conaway [R – Tx.], Conaway, the uh, Chair of the Agriculture [Committee] in the House, which is pretty drastic in and of itself. And then something that kind of slipped by a lot of folks was the President issued an executive order basically telling all the Federal agencies that had anything to do with the Federal safety net that he wanted those programs to be reviewed and evaluated and if there was any duplication, he wanted that duplication shut down. So, they have 90 days now to respond to the White House and how they're going to do that. So it's like, wow, all of this is happening at once and I wish they were all talking together because it's going to make our work in creating food security much more challenging. But what we have to ask ourselves is, if we're dropping them off of the government rolls and we're adding them to the private sector, like the food bank rolls, and our lines are going to get longer, while there's is going to get shorter, then it's gonna put a lot more pressure on our network.
PC: And then you also hear rumblings of reducing or eliminating public school food programs as well.
PK: Oh yeah. It's – hopefully – common sense is going to prevail. Because, look, if you live in Michigan and there's a snow day on Friday or Monday, that's just the third or fourth day in a row that a child didn't get enough to eat. So if we're expecting students and we're expecting public education to perform at a super high level, we want third grade reading level by third grade. Look, it's this simple. If they're not well fed, they won't be well read.
TM: And so much of that ties back to the money question. If the government is tightening belts as it were, cutting particular program area budgets where our nonprofits such as the Food Bank Council of Michigan gonna make up that shortfall. And I think the real question for us here is: does the charitable deduction and making that somewhat obsolete here, is that going to be a problem for you? Is that going to affect how much your donors are giving in order to help make up for a different government policy coming into play?
PK: Yeah. Well, you know, we hope for the best and prepare for the worst. And you know, we're, we're hopeful that, again, if we're addressing crisis situations, there's going to be the money and the resources to do that. But again, to address some of the long term policy and root causes of why people are food insecure. Again, you got a lot of, you have a lot of people here in Michigan, a lot of families, that are above the federal poverty line, but they're a long way from being self-sufficient. So you know, in Michigan at $11.50 an hour, we drop everybody off the financial cliff and we say “good luck.” So what we do is we incentivized work because they have to make $17.50 an hour in order to be back where they were at prior to making $11.50 and keeping their benefits. $6 an hour gap, that's a tremendous thing for somebody who is struggling, you know, with their education and their job opportunities to begin with. So, we can't just address just the money issue. That's a big part of it. But we're also going to have to address the policies and practices that are embedded in legislation that punish people for working instead of rewarding for them.
PC: We're talking about SNAP program changes and the number of able-bodied Americans who still aren't really making ends meet and needing that assistance. And the government floated this idea through Agriculture Secretary Sonny Perdue, of Americans receiving this box of farmer-produced, American farmer-produced food.
PK: Mhhm, a Harvest Box.
PK: A Harvest Box. What, what is your thought on the government shipping out boxes of food to Americans?
PK: So there's a couple of things. One is Secretary Perdue, he has a boss. Right? And that boss wants to cut the food benefits by over $800 million, so that, that's devastating. So what uh, Secretary Perdue is trying to accomplish with the Harvest Box is say, “I want people to have access to the same amount of food as they would have, although they won't have the access to the same amount of money to buy that food because of the SNAP cut.” So, we know a lot about delivering boxes...
PC, MD, TM: [Laughter]
PK: So for about 40 years, we've done it quite a bit. So what, we're an example of what we're talking about, about how do we get to know the objectives and then influence the policy and the programming. It goes like this. So we've reached out to USDA and Secretary Perdue's team to say “we know a lot about boxes. Here's what we think.” So we have a couple of pilots in Detroit that would address this and essentially, uh, would allow us to have people continue with their choice of food and what quality foods they're going to have access to, but in the end it all delivers itself out in a box. So if we need to put somebody's picture on that box or call it the Harvest Box, there's a lot to ways to do this that are way better than going back 30 years and just putting, canned meet in a box and sending it out to people. Because we, we believe that if it's not consumed then it’s waste, and if people don't want it, if they don't have a choice in it, they're not going to consume it. So basically we're going to ship a lot of boxes of waste.
So we think we can influence that policy, we think we can help that program, if it comes into existence, be successful and at the same time meet the needs of the people that we're serving with quality and dignity.
PC: Will Jeff Bezos be delivering these boxes?
PK: [Laughter] No, I don't think so. I don't think so.
PC, MD, TM, PK: [Laughter]
TM: Little Jeff Bezos robots with key card access to your home.
MD: And drones.
TM: And drones.
PC: Parachuting boxes. Harvest Boxes to your home.
PK: Right, right. Yeah. Well, that might be a better idea than the Postal Service delivering…
PC, MD, TM, PK: [Laughter]
PC: Hey, you went there.
PC, MD, TM, PK: [Laughter]
PK: That idea has been floated.
MD: I just want to take us back to, I find it really interesting, this idea of, that philanthropy and charitable giving to hunger organizations is important and will probably always remain important in donor's minds. However, one of the things that we saw in the Michigan tax credit from a few years ago, that it was a broader base group of organizations that participated, like including community foundations and that the reason for that is there was this more that, that can be a more coordinated or more holistic response. That it's not just about hunger, it's about poverty. It's about other systemic issues that keep people in poverty and that it was more coordinated, and I wonder is there effort um, that you're a part of, to revive the tax credit in Michigan?
PK: Yeah, so there's been a bill introduced, Senate Bill 405, in the, in the Michigan Senate. That looks favorable. We've had discussions down with the House, that's also looks favorable with some bipartisan support. And so now the question is, you know, Governor Snyder has not been a fan of tax credits. And so we're having some conversations with the governor's office and uh, they've asked for some data. Happily, that data's coming from the Food Bank Council as well as from the [Dorothy A.] Johnson Center [for Philanthropy] because one of the things we learned, that you guys helped us discover, was that while some of the giving to the food banks didn't necessarily drop off, definite giving to the community foundations dropped off, particularly among the younger donors in their 30s and early 40s.
And so that's where some of the long term funding for us to do the pilots and understand the problem, and do the research, and craft solutions is going to come from through that funding through our local community foundation. So it's absolutely important and uh, we're hopeful that both, uh, branches of the legislature, as well as the executive branch, is going to come alongside of us and we're gonna be able to restore these tax credits for community foundations, homeless shelters, and of course all of the food banks.
TM: And is that effort to revive the tax credit due to the Tax Cuts and Jobs Act or does it actually predate all of that national level debate?
PK: Yeah. So, you know, as leaders we're supposed to see before, beyond and you know, and anyone else. And so I, the work does predate some of this other developments that have come across both on the federal level. And so I have to say that Rob Collier, the CEO for the Michigan Council of Community Foundations, has been a, just a prince of a leader in trying to get this accomplished and he's done a great job.
TM: And he, he's an amazing leader. And just to give him the right credit there, I think he's the CEO of the Council of Michigan Foundations.
PK: Yes, absolutely.
TM: So we've talked a lot about this new context that we're in then, where we are looking at changes in tax policy, we're looking at potential changes to the federal budget in social and food programs, and how it could both play out here in Michigan, what we're doing on a state level to figure it out. What's kind of the overall takeaway here? I mean there's a lot of pushback from the sector on the way tax policy’s currently sitting and a lot of pushback from nationwide interest groups on where the federal budget is going. What's the kind of big picture here that you're seeing?
PK: Yeah. So that's, that's a great question because the, uh, the big and I think we have to keep the big picture in mind, you know, we can get singled out on this tax credit over here, but how does it all fit in? How does the food programming and the cuts to SNAP and the charitable sector and also the ability to donate my, how has that all go into effect. So we have to look at it from the big picture. And so I think that, that we have to continue to use our influence and advocate for policies that we know are effective in charitable giving and the programs that we know that are highly effective in helping people meet their basic needs. So those two things go right together. But at the same time we do have to understand, this is the new reality. And we have to be able to do the hard part of advocacy and that is to try to understand what is the objectives that some of the policymakers are trying to reach.
And so how do they, how are they defining success? And that's going to take some conversation. That's going to take some listening, what it's not going to take is some name calling and assigning of motive. So, if we'll do the hard work of building relationship with people on both sides of the aisle, whether they agree with us or whether they don't, then we can understand what the objectives are and once we do that, we can begin to craft and influence programming that meets that objective. And so that's the way that we're going about it as the Food Bank Council of Michigan, with our Michigan delegation, we're trying to understand what some of our more folks who are in decision making roles, what are they trying to accomplish and what's their objective, and once we do that, then we believe we can have some influence over their policy, make their objectives even clearer, and help them understand, here's a better, more effective way in order to meet those objectives.
PC: Dr. Philip Knight, President and CEO at Food Bank Council of Michigan. Thank you so much for joining us on Field Notes in Philanthropy.
PK: It's my pleasure.
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PC: Our next guest is the Director of Policy Development and Analysis at Independent Sector, Allison Grayson. Thanks for joining us today.
AG: Thank you for having me. I'm really excited to be here.
PC: So Independent Sector has really been in the center of a lot of these national conversations around the tax overhaul and the potential impact that legislation could have on charitable giving. What is your sense of how the sector is reacting to all of this?
AG: So, that's an excellent question. What I'm hearing first and foremost is a lot of anxiety and uncertainty about what this legislation, the Tax Cuts and Jobs Act means for nonprofit operations. The bulk of the conversations have been asking questions around charitable giving, but around early May, several of the discussions have also ramped up around new provisions to increase taxes on nonprofits. Even on nonprofits that don't have earned income. Some of these taxes are actually on transportation benefits, or whether or not nonprofits have parking that they provide in parking lots to their employees. So right now there's a lot of questions and just a, a, an incredible desire to find more clarity either coming out of the IRS through rule-making, or through research and information sharing among nonprofits within the sector to try to get a better handle around what is happening.
MD: How do it, do lawmakers responding to this argument or this conversation that folks are having with them about these new policies towards nonprofits. I mean I know in some sense that some of these new elements of the reform initiative or the overhaul has been targeted to universities in particular. Is that a fair statement?
AG: I think it's a fair statement that some of the provisions have been designed to specifically target universities. Often universities and hospitals are sort of the first targets that policymakers look at for increased regulation, in part because there's a perception that they have a lot of resources and maybe they aren't using them properly. So the tax bill had a, it, it has proposed and passed a law for a tax on college and university endowments.
But also there's an Unrelated Business Income provision that says if you have multiple business activities and, some of them have gains and some of them have losses – historically, nonprofits and businesses both can use the losses to offset the gains and reduce your overall tax bill. The 2017 bill actually says that nonprofits are no longer allowed to do that and the justification for that law and treating nonprofits differently than businesses is, well, “we did some research about five years ago of universities and they were not calculating their Unrelated Business Income Tax correctly, so we're going to create this sort of heavier regulation and we're applying it to all nonprofit organizations.”
So, at Independent Sector, we are always very cautious about any provision that targets one part of the sector because we know that it's very easy for that law to spread to all tax-exempt organizations.
I will say broader reaction you had asked about from, from lawmakers and how receptive are they to various concerns or arguments, uh, about the impact of the bill. And I want to clarify, there's probably a slight difference between policy arguments and, and there's sort of a political argument that's at play. And the political argument is in this year of midterm elections, there's a lot of people who are running, in particular Republicans who are running, who have challengers even in their primary races and they are really looking to use the tax bill as an asset that they can point to of, "look what we've been able to accomplish now that we have Republicans in control of the administration and both chambers of Congress, therefore you should reelect me."
Because of this view that the tax bill is a political advantage. There's a reluctance to listen to discussions, right now at least, that would open the door to questions that the tax bill didn't necessarily benefit everybody. They want to keep that asset, that political asset as strong as they can through the election. There may, though, be a window after the elections where people may be more receptive to hearing from nonprofits and charitable organizations about what we're observing. When we start saying, you know, all of the research show that charitable giving probably is going to go down, and in fact, you know, in the first three quarters of this year, our charitable giving is not keeping pace with 2017. So let's have a conversation about what we can do from a policy perspective to improve that.
You know, it, it is unfortunate. Independent Sector commissioned a study through the Lilly School [Lilly Family School of Philanthropy at Indiana University] that found that increasing the charitable or include, increasing the standard deduction, which means that far fewer taxpayers can claim a charitable deduction would decrease charitable giving by up to $11 billion. And they aren't the only ones who claimed or who had these findings. There are plenty of other research institutions that found the same. Um, and what they wound up with was a, uh, a general consensus that this is going to be detrimental to charities.
Unfortunately, policymakers did not heed that research. Um, they've chosen to instead believe that the tax bill will put more money in people's pockets and that will lead to a sort of indirect increase in charitable giving. So, what we're talking about this year is, well we need to demonstrate to these policymakers that that is not true or that is not the experience of nonprofits on the ground.
TM: So yeah, that's a key question here. And we've actually been having some kind of conversations that the Johnson Center too about these gaps in our data about the sector and that potentially with far fewer Americans itemizing, I mean it's predicted to be less than 10 percent of Americans will continue itemizing, tax itemization has long been a critical source of giving data for our sector. That's where we get a lot of understanding about, you know, where people are giving, how much when, and attaching that kind of information to some key demographic data that would give us some, some better trends and understanding of giving across the country within communities, et cetera. So, I think the question we're coming up with here is, how are we going to prove this one way or another? I mean, if we don't have the itemization data and we don't know whether or not people are giving more, giving less, you know, organizations like Independent Sector, what are you guys thinking is going to be the strategy that the sector can take to say for sure one way or another? Yes. giving went down, no, it did not go down…under this new deduction.
AG: Wonderful question and really just the $1 million dollar question because you, your conversations are absolutely on point. And that the change in how people will be giving and recording giving and a lot of it won't be reported on their tax forms anymore because they're not reporting claiming a charitable deduction, will make it a lot more difficult to track giving in the traditional sense through IRS statistics. So instead essentially the sector is going to have to collect this information itself one way or the other or academic institutions are going to have to collect that information. So, there's a couple of different tactics and strategies. We've been talking about amongst charitable organizations and among researchers that traditionally do a lot of analysis around charitable giving and we've come up with a couple of conclusions. One of them is the Indiana University, when they did the analysis for us last year, used the University of Michigan survey data that is a panel survey where they surveyed the same household every single year and ask them about their actual giving behavior and then that sample can be extrapolated to a larger representative population of givers.
AG: So we're going to have to start asking people how much they're actually donating rather than relying on the IRS and what they're reporting to the IRS.
The other approach that I think we're talking about utilizing towards the end of 2018 when we feel like more organizations’ charitable giving campaigns are coming to a close is surveying organizations. So I talked about ya know, survey data of donors and asking them what they're giving. And we're also discussing the need to probably survey organizations to see how the, how their revenue has been affected. And, and that's in part because there are several critical variables we want to capture as we're looking at what this means. We want to see, not only sort of, generally, you know, is the amount of money coming in the door more, less or the same than it wasn't 2017, but we also want to break down some, some differences around the people who are giving. Do they look different? Is it only higher income households or is it more broadly distributed? So does the donor base look different than it did last year? Does the amount that individuals donors give look different than they did last year? Are they using different kinds of giving vehicles, like donor advice funds, whereas they didn't last year? Are they choosing to time they're giving differently? Whereas there's some discussions where people may forego giving on an annual basis and start doing something called “bunching,” where they give a big gift once every five years where that year they will actually claim the charitable deduction and choose to itemize and then the remaining four years after that, they, they will not. They'll claim the standard deduction. So, it's really all about what are, what are the trends that we're seeing and some of that can be captured through donors, but some of it is probably going to have to be captured through asking nonprofits themselves.
AG: The third component, and what we're trying to do right now, is ask nonprofits, their resource development staff in particular, um but also their accounting staff or people, who have nonprofit clients to already be looking for some of these trends early and collecting anecdotal data and, even more importantly, collecting stories. One of the things we felt like we didn't have last year to influence policy makers, we had, we had quite a bit of data, it was economic data, but we had a lot of numbers, you know, charitable giving is going to fall by $11 billion, but we didn't have a great way of translating what that would mean as far as it would look like in their local communities. And so, we're also trying to collect stories that say “this is what charitable giving currently does for our organization. This is what we would not be able to do, or how our services and our communities will look different without it, and here are the trends we're already noticing early in the year.” So it's not, you know, a huge quantitative study that is a representative sample of the sector, and instead it sort of collecting anecdotes that could end up being great stories that are sort of canaries in the coal mine to peak policymakers’ interest now, rather than having to wait until 2019 or later.
AG: And even some of those stories could be, you know, we've heard a lot from our donors who are uncertain about how they're going to give this year. And that's a story in and of itself because what we're hearing from policymakers are, "We don't believe that, that the tax code influences at all how people give." And so, if organizations are hearing from their donors, “well they're actually uncertain about what they're going to give this year because of tax reform.” That is evidence that tax, the tax code actually impacts giving.
MD: Well ya know, I think that's really fascinating about the stories and I bet, um, it's important, like, what the story is and who's being, who's hearing the story and how they respond to it. Ya know one of the things that I think is a theme that's emerged in this episode is that it's difficult to isolate this conversation around charitable tax deductions and charitable giving from other policy matters. Ya know one of the things I've always been fascinated by is that, in light of this tax overhaul um, and the implications on the sector, that it's actually we know from prior research that Republicans and conservatives have generally been more in favor of philanthropy and charity, charity and nonprofits than even progressives or liberals have. And so it's just interesting to try to translate, what's the story here that we're receiving about this overhaul and what that means to other policy matters or even politics. Do you just have any thoughts on that? Like for example, if they're lifting the cap on the charitable tax deduction for some most likely more wealthier donors, is that something telling us about another narrative about this tax overhaul policy?
AG: Absolutely and you are 100% correct. Historically, ya know, Republicans have been very strong supporters of charitable giving incentives, so I think we as a sector were sort of surprised that this has been the reaction lately to push and in particularly a push for a potential solution. I didn't mention that last year a lot of people in the advocated for a perspective solution, which is the universal charitable deduction, which means basically just allow anybody to claim a deduction for their charitable giving. Regardless of whether or not they itemize. And historically, since Republicans have been so supportive of lots of other charitable giving incentives, we didn't anticipate there being much pushback and the analysis from Indiana University supported that. So you know, we, we knew that proposals and the tax bill we're going to decrease giving by $11 billion. But if you add in a universal charitable deduction, not only would that $11, $11 billion be recouped, but it actually would increase giving even more by $7 billion
AG: So that's a total of $18 billion of giving generated. And in the grand scheme of tax reform, it didn't cost very much at all. It was nominal. It was actually $75 million cost to the government, so if $75 million for $18 billion in a return on investment is a pretty good proposition. And we were kind of surprised we didn't get more traction among lawmakers as a result of that. And I, I, you know, there's a lot of speculation and if you get sort of people offline, they'll give you some great hypotheses. I don't think there has been a definitive answer, but at the end of the day I think, you know, maybe we as a sector just didn't make a strong enough case as to why our needs should rise to the top of, of lawmakers priority list when they were weighing what can they afford to put in and what can they afford to keep out.
AG: And what they were choosing to keep out, even though it was a $1 trillion bill, there were still Republicans who almost didn't vote for the bill due to concerns around cost. So, I think that came up a lot when we had conversations around charitable giving incentives in the tax bill. We genuinely believe that's why some, some of the provisions’ increased taxes on charity is try to control for other areas of the bill that had increased costs. So generally speaking, I think that's where they're coming from. We have heard from policy makers that they did try to raise the AGI [Adjusted Gross Income] limits on the charitable deduction from 50 percent up to 60 percent and the idea was, well for those people who do continue to claim a charitable deduction, they are incentivized to give a little bit more than they could in the past, which is great because in you know it does stimulate giving. The problem is it only stimulates giving for the remaining 11 percent of taxpayers, or so, who still will end up claiming the charitable deduction, and these are primarily the wealthier household, wealthiest households at the top of the income spectrum. This has generally been received by tax experts as a nice token that lawmakers are trying to give to the sector, but the sector was very strong in saying, "That's not enough to cover the loss we're going to see from other parts of the bill."
TM: And there's a significant question to be asked there around who's giving and where all the money is coming from and where all of it is going. Because if you're, again, only stimulating additional giving from the wealthiest Americans, that's essentially taking the democracy out of the equation, right? It's saying that with fewer Americans able to give at various lower levels, the charitable dollars are only going to particular organizations or interest areas that might be relevant for very high wealth givers. So that's an interesting question here too, is that technically the charitable deduction did not go away, but because the people who are going to now be taking advantage of it are at such a disproportionately high end of the spectrum that…we talk a lot about the nature of philanthropy and democracy. That it's a tool of civic engagement and if we take that away here that has some really serious potential consequences for the sector.
AG: That's 100 percent true. Ya know, when we at Independent Sector have been talking about this, we often cite the statistic that more people give to charity than vote. So as you had said about this being a key component of civic engagement, we 100 percent agree and we think that civil society is stronger when everyone participates as a donor and therefore we think everyone should be incentivized for the tax code to participate as a donor.
So we're sincerely worried beyond, you know, the, the overall amounts of fluctuate and go up and down as a result of this. We're even more worried about this, this fact that only a small slice of Americans are incentivized to give more. And that was the thing, Americans who already have a lot of means, of course we always want them to give and to help give back to their communities, but we think communities are strongest when everyone feels they have a stake in supporting charitable organizations. And we also know that different kinds of charities have different kinds of donors and some of the charities that serve at-risk communities, disenfranchised communities, communities of color, sometimes are the same ones that rely on the smaller donors that will no longer be incentivized to give through the tax code. And we definitely don't want to lose those voices of those organizations in civil society as a result of this. Which is why we like to continue to push policymakers to think about a fair, more equitable solution, like allowing everyone to claim the charitable deduction.
MD: Social movements are always more successful when they're self-funded, in my opinion. In that I think-
MD: When they're outside funded, it's not as impactful I think.
AG: 100 hundred percent agree. [Laughter]
PC: Yeah, Allison, I think you're coming back again on this program, uh, that was fantastic.
PC: Allison Grayson, Director of Policy Development and Analysis at Independent Sector. Thank you so much for joining us on Field Notes in Philanthropy.
AG: Thank you for having me, it was a pleasure.
Woman’s Voice: Field Notes in Philanthropy is a partnership of WGVU public media, The Dorothy A. Johnson Center for Philanthropy, and Grand Valley State University. Our technical producer is Rick Bierling. Joe Moran composed our theme music. The views and opinions expressed on Field Notes in Philanthropy do not necessarily reflect those of WGVU, The Dorothy A. Johnson Center for Philanthropy, or Grand Valley State University.
PC: Here is your Harvest Box...eat!