Northwest Indiana charitable organizations could lose millions in donations under the compromise tax reform bill set for a final vote this week in Washington, D.C.
The proposed bill will double the standard deduction to $12,000 for individuals, and $24,000 for married couples filing jointly, according to published reports.
“Our concern is, when you increase that, people won’t itemize anymore, and that means charitable organizations will lose,” Carolyn Saxton, president and CEO of the Legacy Foundation, Lake County's community foundation, said.
Using the new, higher standard deduction, taxpayers would be able to avoid paying taxes on more of their income. However, it also might drastically reduce the number of filers who itemize, because itemizing only makes sense if your deductions, including to charities, exceed the standard deduction, according to the Tax Policy Center.
About one-third of Americans currently itemize their tax deductions. That number could drop to as low as 5 percent if the standard deduction amount is increased.
“We don’t know what’s going to happen at this point, but increasing the standard deduction by doubling it will probably have a negative impact on charitable giving,” Saxton said.
Lisa Daugherty, president and CEO of Lake Area United Way, said the impact on the organization’s annual fundraising campaign isn’t expected to be as much as on the county as a whole.
“We don’t take a position on the comprehensive bill, but the national organization expects the loss to be several hundred million dollars,” Daugherty said.
She said the organization is estimating a 5 percent loss in overall giving as a result of the law. In Lake County, based on information from 50,330 income tax returns that showed a total of more than $192 million in donations from itemized deductions, that would mean about a $9 million loss for all the charitable organizations in the county.
“We don’t know how many of our donors are itemizing, but based on the profile of a typical donor, we will fare better than the 5 percent. Still, in terms of campaign dollars, we could see a $130,000 loss from that,” Daugherty said.
“We get other funds, but we’re deeply concerned about it, because we already know there is a greater need. We believe the basic-needs organizations will be hit the hardest.”
Kim Olesker, president and CEO of United Way of Porter County, said, “Currently, our organization serves 69,000 residents who rely on United Way each and every day. As such, we are deeply concerned that the tax reform bill will dramatically harm charitable giving to human services organizations.
“Across the U.S., 31 million middle-class taxpayers who currently donate to charity will lose the charitable deduction as a result of the current tax bill,” Olesker said.
“In Porter County, 19,140 people claimed a charitable deduction in 2015. Those people gave a whopping ($82.8 million) to charity. If they gave just 5 percent less because of losing the charitable deduction, that’s $4 million less to charities.”
Fewer people giving to charities
The concern over the loss of charitable contributions because of the loss of itemized deductions in the new tax bill comes at a time when fewer people are giving to charity.
According to an article in The Chronicle of Philanthropy, from 2000 to 2014, the percentage of Americans who gave to charity declined for all ages, education levels and income levels. The article detailed a study by the Indiana University Lilly Family School of Philanthropy that focused on religious giving.
The percentage of households giving to charity dropped to 44.5 percent from 66.2 percent during that time, while the decline in religious giving was even more significant, with only 34 percent of households giving to houses of worship or religious organizations in 2014, compared to 46 percent in 2004, according to the article.
The study found only 13 percent of adults younger than 30 give to religious causes.
And only 51 percent of the households in the Midwest states of Indiana, Illinois, Ohio, Wisconsin and Michigan gave to charities in the latest census figures, which is the lowest in the country except for the southern states from Texas to West Virginia.
Changes could help as well as hinder
Joseph Laciak, president of Laciak Accountancy Group, said the impact on charitable contributions will depend on the individual.
“Most of those who donate to charity are doing so because of their own charitable inclinations and not because of the tax deduction,” Laciak said.
“Those giving a big amount will not be affected. The people most affected will be those giving $3,000 or $4,000 or less, but, with the higher standard deduction, their income tax will go down, so those people should have more money to give to charity. I don’t know if they will still be inclined to give that money to charities.”
Charities also could be affected by the decrease in corporate taxes. Having more money could mean more money to give or more money to pay out in stock dividends, which would mean stockholders would have more to give, Laciak said. Whether they would or not, again, depends on the person or the corporation.
If the estate tax is eliminated or the standard deduction for it is dramatically increased so only a few would still pay, Laciak said that could be a double-edged sword, since many people include charitable donations in their estate planning to lower the impact of the tax.
At the same time, if a wealthy person has a charitable intent, they would have more money to contribute. If they stop giving because of the new law, charities would “have a very huge problem at that point,” he said.