Are Tax Changes A Concern?

by Robert I. Evans & Avrum D. Lapin

Seemingly, not just the U.S. government is undergoing significant change these days. The world of (Jewish) philanthropy could be looking at a major transformation as well. Proposals to change the federal tax deductibility on charitable donations for individuals in top tax brackets may be one major issue that could challenge the existing paradigm. But amidst all of the discussions, one strong reality is emerging: traditional considerations surrounding charitable giving by donors at all levels are changing. How best to get a grip on these debates and their effect on charitable giving? In a sea of uncertainty, grab a paddle and start rowing.

Politicians of all stripes have chimed in on proposed federal reductions in tax benefits for charitable contributions. American non-profits, including many Jewish organizations, have weighed in heavily against any changes in existing tax incentives to support charitable giving and leaders have spoken out loudly about reducing the tax credits that the country’s wealthiest donors could receive when making a gift. As leaders, it is their responsibility to address this issue and we are confident that their efforts will ultimately succeed.

Philanthropy represents a substantial component of the U.S. economy today, with approximately $306 billion given in 2007 to non-profits by individuals, foundations, and corporations and with more than 1.3 million legitimate non-profits on the IRS books. These figures continue to increase regularly, albeit sometimes gradually, despite downturns in the U.S. or global economies. (Look for 2008 figures to be announced in June, with expected slight decreases from the best year ever in terms of charitable giving).

While most of the tax-focused public and private discussions address various aspects of what motivates donors, it still leaves the question unanswered of how, and if, our  nonprofits will be affected long term, prompted especially by shifts in giving priorities.

There are many ways in which U.S. tax law changes can play out, including:

• With the possibility of a lower maximum deductibility rate going into affect in 2011, donors might be willing to boost their charitable giving in 2009 and 2010. This could potentially provide needed short term support for ailing non-profits, taking the argument that donors can help the charities more by giving now rather than later.
• These changes may also inspire the philanthropic marketplace to “naturally” re-distribute their charitable dollars, focusing on nonprofits that are particularly struggling in this economy.

The last major tax changes in 1988 prompted a serious increase in charitable giving in 1987. But regardless of tax changes (positive or negative) or downturns in the economy, charitable giving has continued to rise steadily over the last three decades.

Additionally, we have found that American (including Jewish) high net worth donors historically have considered taxes as the least compelling reason to support charitable causes. The reason that American Jewish donors today continue to give generously is the opportunity to impact upon their community and Jewish life and to truly make a worthwhile difference.

Obviously, we are in precarious waters today and we recognize that the behaviors of the past may not accurately dictate what happens in the future; however we are deeply confident that potential tax changes will not destroy the spirit and motivation of Jewish giving throughout the philanthropic community.

But the most important recommendation for Jewish nonprofits is to assess their needs today and seek to strengthen their capabilities to meet their missions and the expectations of their communities and constituents.

Further, we call upon organizational leaders to be innovative and strategic as they look ahead. There may be new pathways as organizations consider how to use potential changes as opportunities to appeal to donors, drive their vision forward, and secure more charitable dollars.

Follow-up to this topic in the coming weeks will focus on other paradigm shifts in the non-profit world that undoubtedly will impact philanthropy and the Jewish community.

Robert I. Evans, Managing Director, and Avrum D. Lapin, Director, are principals of The EHL Consulting Group, of suburban Philadelphia, and are frequent contributors to eJewishphilanthropy.com. EHL Consulting works with dozens of non-profits on fundraising, strategic planning, and non-profit business practices.