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Tax Reform’s Chilling Effect on Charitable Giving and Nonprofits

By December 12, 2017January 16th, 2018Blog

By Kristen Farnham JD, Vice President of Development

Samantha came to live in a Spurwink home and attend a Spurwink school in 2015. She was 13 years old when she arrived, and had been in 13 different placements in her short life. She had experienced a lot of trauma, and she had a hard time trusting the adults in her life. But her Spurwink team – including the staff with whom she lived, her teachers, and her clinician – formed a solid foundation upon which she could rely.

Because she felt safe, Samantha began to blossom. She became more engaged in school; her academic progress accelerated; and she became less reserved and more self-confident. The Spurwink staff she lived with became so invested in her future that they changed their professional roles and became her foster family. Today, Samantha has been adopted by her forever family, is a thriving student, and is excited about her future.

Samantha’s story is one of the many we experience at Spurwink. As a nonprofit serving people with behavioral health needs throughout Maine, Spurwink meets the critical needs of more people every year, welcoming over 8,000 clients last year.  Like Samantha, each person comes to us with a complex and unique history. And as we did with Samantha, we meet them where they are, provide evidence-based therapeutic treatment, and help them on a path to a brighter and healthier future.

As a nonprofit, Spurwink relies upon the engagement and support of individuals, businesses, and foundations to help us do this critical work. Last year, we saw an increase in donations from all three of these sectors, for which we are extremely grateful.  This critical support is in jeopardy, however, if the proposed federal tax reform legislation is enacted.

The House and Senate bills would severely impact charitable giving and hinder the ability of Spurwink and other nonprofits to achieve our missions. Under current law, the charitable tax deduction for gifts made to nonprofits is available only to taxpayers who itemize on their individual returns. If an individual takes the standard deduction of $6,350, which 70% of taxpayers do, the taxpayer receives no additional tax benefits from any charitable giving.  Currently, charitable giving is driven by the itemizers, with that group accounting for 82% of all charitable giving.

Under the tax reform plan, while the charitable deduction remains in place, the incentive for charitable giving is eliminated for most taxpayers. By doubling the standard deduction – from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples filing jointly – it is estimated that the percentage of people who itemize will fall from 30% to five percent.

To put that in dollar terms, it is estimated by the Joint Committee on Taxation that if the House bill is enacted, the number of taxpayers who itemize will drop from 40.7 million who deducted $241.1 billion in charitable contributions to 9.4 million who will deduct $146.3 billion. If we do the math, that is a mind-boggling $95 billion reduction.

We recognize that people don’t give to nonprofits just to receive a charitable deduction on their tax return. Research indicates that the tax incentive is not why people give; they give because they care. However, the tax incentive impacts the amount that they give; they give more because of the charitable deduction. If the incentive to give disappears, the negative impact for nonprofits could be as much as $13 billion per year, according to a recent report by the Lilly Family School of Philanthropy.

Congress can prevent this devastating impact across America by enacting a universal charitable deduction. All taxpayers would be able to claim the charitable deduction regardless of whether they claim the standard deduction. Instead of gutting nonprofits, this plan could increase the number of people who donate and the amount they give to nonprofits, in some estimates by as much as $4.8 billion annually.

We hope that Congress will preserve the charitable deduction and allow Spurwink – and all of the other nonprofits across Maine – to deliver on their missions. Children like Samantha deserve nothing less.