Tax Policy Changes, Strength of U.S. Economy Lead to Mixed Outlook for Charitable Giving

With the passage of the Tax Cuts and Jobs Act and recent trends in stock market performance over time, Americans can expect major changes in the landscape of charitable giving in the coming years, The Philanthropy Outlook 2018 & 2019 indicates.

The new report is researched and written by the Indiana University Lilly Family School of Philanthropy and presented by Marts & Lundy, a fundraising and philanthropy consulting firm. It shows that the strength of the U.S. economy and recent changes to federal tax policy will be the key forces to watch as the 2018 philanthropy picture unfolds.

“We anticipate that 2018 will be an unusual year for philanthropy, with several competing forces simultaneously shaping the giving environment,” said Amir Pasic, Ph.D., the Eugene R. Tempel Dean of the school. “To gain insights into the dynamic factors that will influence charitable giving in 2018 and 2019, donors and nonprofits must consider both the economic climate and the complex ways in which donors may respond to recent tax policy changes.”

“Some aspects of the new tax policies may have a dampening effect on charitable contributions. Conversely, overall improvements in the economic environment will likely bolster charitable giving,” said Una Osili, Ph.D., an economist and associate dean for research and international programs for the Lilly Family School of Philanthropy. “While we cannot know exactly how the impact of these factors will play out for philanthropy, we can present multiple research-based scenarios, and the factors that are likely to have significant effects, for users of The Philanthropy Outlook to consider.”

Three Growth Scenarios: To increase understanding of the unique charitable giving landscape emerging in 2018, the report presents three scenarios detailing potential effects of the combination of tax policy changes and broad economic conditions on charitable giving.

  • Under the “High Growth” scenario, the Tax Cuts and Jobs Act would build on the momentum generated from the healthy economy at the end of 2017. The loss of tax incentives would have a dampening effect on giving by some households, but the performance of the economy overall would help offset this, and corporate and foundation giving would remain strong.
  • In the “Uneven Growth” scenario, tax policy changes would primarily benefit corporations and wealthy business owners, with minimal trickle-down effects. While the impact of this scenario would vary across different types of charities, estimates for total giving would hold steady.
  • In the “Flat Growth” scenario, tax policy changes would have little impact on economic growth, and donors may adapt to tax policies with fewer gains to the charitable sector, preventing the economy from realizing the full benefits of tax law adjustments. Under these circumstances, broad implications for charitable giving are difficult to ascertain.

Economic growth and changes in tax policy will have varied impacts on donor segments and organizations, and therefore will affect their charitable giving in different ways as well. “Under the Tax Cuts and Jobs Act, the reduction in tax incentives to donate are likely to have a greater effect on middle-income Americans rather than high-income households, many of whom are generally expected to continue itemizing their deductions,” said Philippe G. Hills, President and CEO of Marts & Lundy. “The predicted decline in individual giving as a result of tax policy changes is likely to primarily impact organizations middle-income Americans support, such as local charities, congregations, and basic needs organizations. These charities could be affected more than large arts organizations and educational institutions that have the resources to more fully engage wealthy donors.”

“While the economy should remain an encouraging factor for charitable giving, changes to the federal tax code actually reduce financial incentives for many Americans when it comes to philanthropic gifts and this could result in a sharply different outlook for charities’ fundraising this year,” Hills continued.

In this giving environment, donors, fundraising professionals and policy makers need rigorous data and reliable information to help them plan for the future. In addition to the three growth scenarios, The Philanthropy Outlook 2018 & 2019 includes a detailed discussion of specific tax policy changes and of economic factors expected to affect giving.

The Philanthropy Outlook is available here.