Armanino Blog

Nonprofits & the Fiscal Cliff: Sigh of Relief

by Tom Schulte
December 05, 2013

Did you hear that? It was the collective sound of the nonprofit industry as we walked away from the fiscal cliff high-fiving each other…for now.

With the top tax rate increasing from 35 to 39.6 percent, the net cost to individuals who itemize of donating $1,000 has decreased from $650 to $604. That combined with a higher capital gains rate that will make the donation of appreciated property more attractive and the extension of the charitable IRA rollover provision will all combine for an increase in individual giving estimated by the Urban Institute to be $3.3 billion (or 1.3%). But fellow NonProfit-eers—we need to keep the Cold Duck on ice for awhile longer as there are a couple more battles in store for us in the coming months.

For starters, there is President Obama who has long supported a 28-percent cap on charitable deductions for the wealthiest donors. Flanking us on the other side are many republicans who have called for a dollar limit of $75,000 for all donations.

On a separate battleground, there remains $110 billion in federal spending cuts—half of which are being aimed squarely at domestic social programs. It seems certain we are going to incur some casualties.

Not All is Lost!
Certainly, there are donors who are “cause-driven” and do not take tax policy into consideration in their giving. And certainly many of the .06 percenters (those with incomes in excess of $400,000) are already limited to a 28-percent deduction on their total itemized deductions as they are subject to the dreaded “alternative minimum tax.”

But let’s assume for a moment that a contribution cap of 28-percent tax is instituted. This would only impact the giving of the ”.06ers” so why do we care? We care because they represent up to 37-percent of all individual charitable giving, according to some estimates. Studies suggest that, coincidentally or calculated, donors adjust their level of charitable giving so that their net dollar outlay is consistent under any tax scenario. To believe that you would also believe that donors have a good grasp of Algebra II and an HP12C by their side when making contributions.

But it is reasonable to believe that some charities are far more likely to be affected by tax change than others. Wealthy donors tend to support colleges, hospitals and the arts and health organizations, so it should be no surprise that the Congressional Research Service report forecasted that arts and education groups would be most likely to be impacted.

So whether it were the marches on the Capital, the continued advocacy of Independent Sector or the unrelenting e-mails and other messages from the industry, it is clear that the message was heard by the lawmakers. Whether that message was strong enough to withstand the continued scrutiny that is certain to come is a question that, for now, has no answer.

December 05, 2013

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