By Amy Owen
President, Community Foundation for Loudoun and Northern Fauquier Counties
Member, WRAG Board of Directors
Last week’s Washington Post headline caught my eye, as it must for every other U.S. tax payer: “New estimate: GOP’s second tax cuts would add $3.8 trillion to deficit.”
Like most nonprofit leaders, my head is still spinning from the expedited, and some would say haphazardly, passed, Tax Cuts and Jobs Act ratified in December 2017. The Joint Committee on Taxation estimated a $1.5 trillion deficit over the next decade as a result. This new legislation seeks to make many of those changes, currently with sunset expirations, both permanent and expanded. It will add to our U.S. deficit. It will also further affect charitable giving.
Serving my community in Loudoun and Northern Fauquier Counties, we face some of the most lackluster charitable giving rates in the U.S. Blinded by the fresh paint on the homes and businesses in one of the fastest growing and highest-income counties in America, our residents don’t see the need that is, in fact, here.
But, this is larger than what we face in my community. This is an issue that bullies a cornerstone social compact: American philanthropy.
Take, for instance, the estate tax: one of the most pro-social engines to establish legacy gifts in the U.S. And yet, this new plan offers new, even deeper cuts to the estate tax paid by about 5,000 of the wealthiest families in America.
Researchers at Philanthropy Outlook have scoured existing data to anticipate the future of philanthropy under these new policies. In years prior, 30% of U.S. households itemized taxes. With the new standard deduction rules beginning in 2018 tucked into the Tax Cuts and Jobs Act, 5% to 12.5% are expected to itemize. It will be the larger income earners in our nation who itemize. If you’ve studied data offered by the Chronicle on Philanthropy’s How America Gives, you know it’s the low to mid-income earners who donate the highest percentage of their income to charity. Local charity is likely to suffer the most.
Plus, have you heard that IRS guidelines are proposing that, above and beyond the new $10,000 cap on state and local tax deductions, tax credits issued by your jurisdiction may now be excluded? In other words, in Virginia, tax credits received as you donate through the Neighborhood Assistance Program (benefitting donors to nonprofits serving low-income citizens), Land Conservation Tax Credits, and the Education Improvement Scholarship Tax Credit Program, and others, will no longer qualify for federal tax deductions—even if you itemize.
While not the first reason all donors give, tax payers are most certainly responsive and incentivized by our tax system’s “nod” to charitable giving. Sixty-seven percent include it on the list of “why I give” in a donor survey by the American Institute of CPAs.
This new legislation breaks a social contract between government and citizen that supports the return of wealth and income to need, education, equity, and innovation through charitable giving.
And with this kind of deficit on the horizon, philanthropy will be more essential than ever. The House is expected to vote later this month.