Dear Kim Klein Fundraising Q & A

Get free fundraising advice from Kim Klein by emailing kim[AT]kleinandroth[DOT]com.

Please note: Questions submitted to the above address will not be answered personally, and not all Dear Kim questions can be addressed in the column. Kim selects two questions each month that are most helpful to the largest number of people. This column is published once a month. Below is the most recent posting.

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The Tax Cuts & Jobs Act & You

Dear Kim,

The recently passed tax bill seems terrible for nonprofits. Can you comment on it?

~What Will Happen to Us?

Dear Will,

The Tax Cuts and Jobs Act (TCJA) is one of the most awful pieces of legislation ever passed. The main reason is that because it so dramatically widens an already obscene gap between rich and poor. It cuts corporate tax almost in half, while still incentivizing corporations to go overseas by taxing income made by U.S. companies’ overseas subsidiaries at half the rate applied to their domestic income, 10.5 percent compared with the new top corporate rate of 21 percent. It cuts discretionary spending (already at a six decade low) and increases the national debt by $2 trillion over ten years. And much more. You can read the many critiques of this bill on any number of reputable think tank sites. Here are a couple of articles I have found helpful: https://www.brookings.edu/podcast-episode/winners-and-losers-in-the-tax-cuts-and-jobs-act/ and https://www.vox.com/policy-and-politics/2017/11/22/16691016/economists-gop-tax-plan-igm-pol.

But I have to admit to an enormous irritation at the way so many nonprofits, including national leaders, have perseverated on the charitable tax deduction. (To be completely transparent, I have written several times on the need to rethink the charitable tax deduction .

Prior to the passage of this tax plan, 70 percent of Americans filed a short form, meaning they did not exceed the standard deduction and thus received no benefits for their charitable giving. With the doubling of the standard deduction, about 85 percent of Americans will file a short form. I am not convinced that this will cause giving to shrink and I think the “research” on this is not well done. Almost everyone refers to “studies” but the truth is that studies about the effect of the charitable tax deduction show a variety of results depending on who is asked and how the questions are framed.

The really terrible part of the TCJA for nonprofits is the virtual elimination of the estate tax. Granted, few people paid the estate tax even under our previous presidents, but given that the estate tax is our nation’s oldest tax and one of the only taxes that is truly redistributive of wealth, we should all be talking about it much more.

So, what is a social justice group to do?

  • Stop telling people they are going to stop giving because they can’t deduct. This is going to be one of the most self-fulfilling prophecies in all of life. No one, from the furthest left to the furthest right, believes that the charitable tax deduction was the main incentive, and most people realize that it is, at best, one of many reasons why people make donations.

 

  • Without the incentive to give to a 501(c)3, the door is open to raise a lot more money for (c)4 work. This is very important in a year when so much is at stake in the electoral arena.

 

  • There are still some important incentives for giving and one I don’t see social justice groups using nearly enough is the IRA Rollover Provision. Once you are past 70 and ½, you have to take a withdrawal from your IRA, and then pay income tax on that withdrawal. However, if you give directly from your IRA to a charity, then you don’t pay income tax (this amount is capped at $100,000)  

 

  • Know that many people may just give money where they see a need—to help shelter an undocumented family or to paying the legal bills of someone fighting an unfair eviction or to helping people with out of control medical costs. If we want people to continue to support organizations, we are going to have to do a better job helping them understand the added value of being a (c)3.  

 

  • All of us are going to have work harder maintaining relationships with our donors, something we should be doing anyway. We need to continue to educate ourselves about what a fair and just tax system would look like and not just believe what is handed down to us from national nonprofit organizations, which rarely look at issues through a race and class lens.

At the end of the day, we don’t know all the ways this plan will affect us and our work, but we do know that the fight for justice and equity should shape and propel our fundraising and our giving.

~Kim Klein