- Posted by EmpowerNonprofit
- On December 20, 2017
One of my goals for this blog is to stay as nonpartisan as possible. But with yesterday’s passage of the Republican tax bill, I wanted to to offer my thoughts on the groundbreaking legislation—viewed through a nonprofit lens.
Regardless of your political leanings or views about tax reform, it’s hard not to think that the Republicans have given the nonprofit sector a big lump of coal for Christmas. Fortunately, they avoided eliminating the Johnson rule and taking down the healthy barrier between tax-exempt nonprofits and the political arena. But other changes mandated by the tax bill threaten to reduce charitable giving by donors of all income levels.
For example, doubling the standard deduction will result in fewer households itemizing deductions—as many as 30 million by one estimate. That means a large number of low- and middle-income givers may no longer have a tax-savings incentive driving their charitable giving. (This article from Charitable Advisors examines the bill’s potential impact on Indiana nonprofits.)
There are concerns about the other end of the income spectrum, too. The final bill retains the estate tax. But it doubles the amount exempt from taxation to nearly $11 million for individuals and $22 million for couples. Avoiding taxation has been a big incentive for wealthy givers to make generous charitable gifts—before and after their deaths—as they distributed the fruits of their lifetime labor. Now only a tiny fraction of estates will be subject to the tax.
Some nonprofits are already planning around the imminent demise of their donor revenue for 2018 and beyond. I urge everyone—especially small and medium-sized organizations—to stop, take a deep breath and think about what the new tax bill really means for the sector. Undoubtedly, some dollars will reduce giving or disappear completely. But this is also an opportunity for all of us to seriously assess what we’re really losing and direct our attention to our strengths.
For example, smaller nonprofits need to abandon their pipedreams of the megarich donor who shows up one day and saves/empowers the organization with an unexpected seven-figure gift. (Seriously, executive directors and development directors—I know most of you harbor this fantasy.) These gifts happen, but they are rare and will become even rarer thanks to the new tax bill.
The reality is that targeting the super-rich has never been a good investment for many nonprofits. Why? Wealthy donors, on average, are less generous than low- and middle-income donors. This was explained nicely in a recent article in The Atlantic. Plus, the wealthy tend to direct their money to large, well-heeled institutions (Ivy League universities, big-city arts organizations and museums, etc.). So smaller nonprofits really aren’t losing serious prospects thanks to the new tax bill.
What about donors who give to flesh out their itemized deductions? Many nonprofits are destined to lose some donations from this category. But what is the true value of the loss? Transient donors giving primarily to save a few bucks on taxes aren’t a sustainable support base. Many show up once then move their money elsewhere the next year. They are the people we keep mailing to year after year, hoping they will someday find us attractive again. Better to let them go—and now they may not tease us with one-time dollars in the first place.
Hopefully, the new tax bill will help smaller organizations move their attention away from these donors and prospects who have given false hope in the past. Instead, they can focus on the people who really matter: donors and prospects who have made a true connection with their organization. The new environment should encourage everyone to get back to the fundraising basics. This means honing cases for support and core messaging; mailing and emailing regularly to people who really care; building relationships that grow small gifts into bigger ones; and taking the time to thank everybody who gives.
Forget about gifts—good and bad—from Washington. Let’s take control of our own success. Doubling down on tried-and-true fundraising strategies is exactly the kind of “reform” that small- and medium-size nonprofits need to embrace.