Lilly School Projects Giving Hike, Just Not In Traditional Methods

February 13, 2018       Paul Clolery      

The outlook for charitable giving for 2018 and 2019 is that there will be growth, just not the way it has always been. As donors remain committed to their favorite causes, the timing and amount of their giving might be very, very different due to changes to deductions in the Tax Cuts and Jobs Act (TCJA) and a general robustness of the U.S. economy.

Giving could develop into more of a pricing incentive mechanism determined on effective timing, the amount of gift and the type of vehicle in which it is packaged.

The new Philanthropy Outlook 2018 & 2019 researched and written by the Indiana University Lilly Family School of Philanthropy with funding from Marts & Lundy, outlines the potential impact of three scenarios, high, uneven and flat economic growth, according to Una Osili, Ph.D., associate dean for Research and International Programs for the Lilly Family School of Philanthropy and principal investigator for the report. It is the fourth such report.

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 it, and corporate and foundation giving would remain strong, according to Osili.

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 in ways that may lead to 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.

Osili said that the projections are that gifts from individuals will increase so long as the economy remains strong. Individuals are the largest segment of American giving, pegged at $281.86 billion of the $390 billion donated during 2016, according to data in Giving USA, also researched by the Lilly Family School of Philanthropy. A big boost should come from foundations since the Dow Jones Industrial Average continues its climb from its 2009 depths of 6,726 to the almost 25,000 at the start of this year.

“The donor base includes increasingly more diverse donors, with major gifts coming from women, people of color, younger individuals, and other unique demographics in recent years. With this diversity comes an interest in funding a variety of needs; we see a rise in philanthropic activities around the world, including in rural communities and post-industrial cities in need of revitalization,” the report’s authors wrote.

The Tax Cuts and Jobs Act doubled the standard deduction to $12,000 for individuals and $24,000 for joint filers. The outlook’s authors admit there is no way for sure “of knowing the ways in which giving habits will change for households that previously itemized but will no longer do so.”

The research projects a different trajectory for each income group, with high-end donors still giving but middle-income donors deciding from one year to the next whether or not to itemize on the federal tax forms and take specific deductions. If that’s the case, bigger gifts might arrive but at uneven intervals, she said. That makes year-end giving problematic for organizations that rely on such revenue.

“The complex, dynamic effects of the Tax Cuts and Jobs Act remain to be seen in the long term. Nevertheless, recent research examining the combination of multiple policy changes indicates that the tax law will likely result in a decrease in charitable giving by individuals/households in the short term,” the authors wrote. “More specifically, should the predicted surge in 2017 year-end giving materialize, this artificial bump would likely be followed by a significant decline in individual giving in 2018.”

Here’s where the high wire act is an issue for overall giving — how U.S. corporations treat profits and thus the impact on corporate giving and potential raises or bonuses to workers and how that money might be donated. Corporate participation in the charitable sector is delivered in numerous forms. While corporation foundation giving is expected to remain steady or increase, in some cases record profits might entice corporations to scale back participation in other marketing efforts in which charities might benefit, Osili said.

“Corporations are using more tools,” not just corporate foundations. There are giving matches and direct investment in communities where funding is not from traditional philanthropy buckets, she said. Funding from marketing budgets, which might be seen as somewhat unnecessary and cut back, is not counted as philanthropy.

“The negative influence of current-year corporate profits on corporate giving may reflect a reduced need to use philanthropy as a marketing tool and increased current-year production costs that tap into the same company resources used for philanthropic initiatives,” the authors wrote.

Donors have a wider range of giving options these days and want to see the impact of their giving. Enter impact investing in which “investments are made in companies, organizations, and funds for the purpose of creating social or environmental impact in addition to a financial return,” according to the authors.

Giving will remain about donors believing in the missions of the nonprofit to which they give. The deviation is from where the money will come and the method in which it will be given.

To see view the complete report, go to http://philanthropyoutlook.com/

  • (TCJA)
  • Indiana University Lilly Family School of Philanthropy
  • Philanthropy Outlook 2018 & 2019
  • Tax Cuts and Jobs Act
  • tax deductions
  • Una Osili