The President’s proposal to reduce the value of the charitable deductions for the wealthiest Americans has sparked concern in nonprofit circles.
Aimed at taxpayers with incomes exceeding $250,000, the proposals would increase tax rates on incomes from 33 or 25 percent to 36 and 39.6 percent by 2011. At the same time, the value of the deduction would shrink from 33 or 35 cents for each dollar donated to 28 cents.
Evidence suggests that concerns about the impact of reduced tax benefits on giving may be exaggerated.
To begin with, according to Independent Sector, only 12.3 percent of nonprofit revenues come from charitable contributions (though the proportion varies by industry, with religious bodies deriving 95 percent of their revenues from contributions and education, health, and human services deriving between 47 and 56 percent from donations). 88 percent of secular nonprofit revenues are derived from earned income rather than donations.
Secondly, a relatively small proportion of taxpayers (29.9%) are itemizers who receive any tax benefit for their contributions. The vast majority of charitable donors, most of them donors to religious bodies, do not itemize their deductions. Clearly, their giving is not incentivized by expectation of tax benefits.
The well-known phenomenon of the “U-shaped curve” in giving, which shows that the highest levels of giving come from the richest and poorest donors, raises questions about the significance of anticipated tax savings as a motive for giving. [James & Sharp]
Thirdly, there are very real questions about whether anticipated tax savings are effective as incentives for giving. It is an unquestioned historical fact that large-scale charitable giving took place without tax incentives: for nearly three centuries before the enactment of the Sixteenth Amendment in 1913, Americans donated their time and money to support organizations and causes in which they believed; even in the early twentieth century, the great gifts from Mrs. Sage ($23 million), Andrew Carnegie ($300 million), and John D. Rockefeller ($550 million) that created the first American foundations were given without any expectation of tax benefit.
Fourthly, studies of long-term trends in giving, such as Colin B. Burke’s “Nonprofit History’s New Numbers,” suggest that the impact of tax policy may actually depress rather than increase giving. Burke’s data, which goes back to 1929, shows that the charitable giving of Americans did not increase significantly with the introduction of universal income taxations, high tax rates, and charitable loopholes in the 1940s. From 1929 to 1963, individual giving steadily increased — from 1.5 percent of personal disposable income to 2.7 percent — then has fallen steadily since. The increase of slightly more than 1 percent in giving, recorded between 1929 and 1963, hardly suggest that tax policy has a powerful impact. The continuing decline of individual giving over the past forty-five years, despite substantial tax incentives and jawboning by political leaders and nonprofits trade associations suggests that giving based on calculations of tax savings may actually be less than giving based on values commitments.
Studies of the impact of religious affiliation and giving affirm this conclusion. Groups that embrace tithing (dedicating 10 percent of one’s income to charity) give at far higher levels than those that do not — regardless of income [On this, see Dean R. Hoge, Charles Zech, Patrick McNamara, & Michael J. Donahue. 1996. Money Matters: Personal Giving in American Churches. Louisville: Westminster John Knox Press]. Further, states where taxpayers give the highest proportion of adjusted gross income are among both the poorest and those with the highest proportion of evangelical Protestants in their populations. Clearly values are more powerful drivers of giving than calculations of tax savings.
In view of the weak evidence supporting tax policies intended to motivate donors and the small role of giving as a source of nonprofit sector revenue, the “manifesto,” “Forward Together: Empowering America’s Citizen Sector for the Change We Need,” issued by the Center for Civil Society Studies at Johns Hopkins University seems a bit overwrought. [http://www.jhu.edu/listeningpost/forward/]. Lester M. Salamon, Director of the Center, declared that the President’s proposals suggest that “the partnership between us and the government isn’t working, and that’s not good for the country.”
Salamon’s “call to action” urges stronger partnerships between the “citizen sector” and government to address the challenges faced by the nation and calls attention to the “capabilities” of the sector. Detailing these, the manifesto hails nonprofits as “agents of change, incubators of innovation, and crucibles for some of our boldest experiments and highest ideals. . . . [As] partners in public service sheltering the homeless, training the unemployed, educating our youth, building affordable housing, counseling families, delivering health care, giving voice to the powerless, enriching our lives with arts and culture, and serving uniquely as vehicles for citizen initiative in support of the common good.”
Needless to say, the enactment of policies intended to strengthen giving and volunteering as well as direct government support for nonprofits are an important part of the proposal.
Though a number of nonprofit executives, consultants, and scholars support manifesto, some leaders in the field are skeptical. Pablo Eisenberg, a long-time champion of nonprofit groups, declined to sign on to the “Forward Together” document because he believes wealthy foundations should be doing more to support those groups. “Nonprofits need to first look to their own community to help them out before asking the government to pitch in,” Mr. Eisenberg said, according to the New York Times. The Chronicle of Philanthropy quoted Eileen R. Heisman, president of the National Philanthropic Trust, in Philadelphia: “My best guess is that this wouldn’t have a huge effect, but because of the economy it is going to have a worse effect.” Many experts believe that the impact of lowering the deduction is exaggerated. “Every time people want to fool around with the tax code, [charities] say it will be the end of philanthropy,” said Bruce Flessner, a Minneapolis fund-raising consultant. “I don’t think it will kill giving.”
Whatever the impact of the President’s tax policies on giving and on the federal government’s relationship to the nonprofit sector, the willingness of an academic research enterprise to advocate for the special financial and policy interests of the industries it is supposed to be studying is disturbing.
“Charities Say Tax Changes Add to Pain.” By Robert Guth and Mike Spector. Wall Street Journal. March 2, 2009.
“Charitable-Giving Plan Divides Nonprofit Groups and Worries Donors.” By Holly Hall. Chronicle of Philanthropy. March 2, 2009. http://philanthropy.com/news/updates/index.php?id=7301
“Charities Say Government Is Ignoring Them in Crisis.” By Stephanie Strom. The New York Times. March 5, 2009.
For text of the “manifesto” to which this article refers, go to http://www.jhu.edu/listeningpost/forward/
http://findarticles.com/p/articles/mi_m2893/is_4_n27948352 – Individual Income Tax Returns, preliminary data, 2006. Statistics of Income Bulletin, Spring 2008. By Brian Balkovic
Colin B. Burke. 2001. “Nonprofit History’s New Numbers (and the Need for More).” Nonprofit & Voluntary Sector Quarterly 30: 174. http://nvs.sagepub.com/cgi/content/abstract/30/2/174
Russell N. James & Deanna L. Sharpe. 2007. “The Nature and Causes of the U-Shaped Charitable Giving Profile. Nonprofit & Voluntary Sector Quarterly 36(2), 218-238.
Dean R. Hoge, Charles Zech, Patrick McNamara, & Michael J. Donahue. 1996. Money Matters: Personal Giving in American Churches. Louisville: Westminster John Knox Press.
Dean R. Hoge, Charles Zech, Patrick McNamara, & Michael J. Donahue. 1999. “Giving in Five Denominations.” In Mark Chaves & Sharon L. Miller (eds.), Financing American Religion. Walnut Creek: AltaMira Press.
Peter Dobkin Hall. 2005. “Religion, Philanthropy, Service, and Civic Engagement in Twentieth Century America.” In Arthur C. Brooks (ed.), Gifts of Time and Money: The Role of Charity in America’s Communities. Lanham: Rowman & Littlefield Publishers.