Charity may take a hit this year because of tax reform and the uncertainty of economic growth, according to The Philanthropy Outlook 2018 and 2019 report releasedTuesday.
The charitable landscape has changed so much for 2018 that authors of the report declined to make a prediction, even though charitable giving has seen record highs in recent years. The uptick in giving has largely been attributed to a bull market that some think may finally be stalling.
President Trump's new tax law nearly doubled the standard deduction to $12,000, which will discourage many taxpayers from itemizing, according to the report. In addition, the law increased the exemption limit for the estate tax, which could cause philanthropic donations to decrease, according to the report by the Indiana University Lilly Family School of Philanthropy and Marts & Lundy, a fundraising and philanthropy consulting firm based in Lyndhurst, N.J.
“We anticipate that 2018 will be an unusual year for philanthropy, with several competing forces simultaneously shaping the giving environment,” Amir Pasic, the Eugene R. Tempel dean of the school of philanthropy, said in a statement.
“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,” he said.
“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,” the report said. “These contingencies consist of high, uneven and flat economic growth scenarios that would affect giving in different ways and to various extents.”
Most economists predict the growth rate of gross domestic products will approach 3 percent for the year. In 2017, growth ranged from 1.2 percent in the first quarter to 3.2 percent in the third quarter.
Under a scenario with a high growth rate, the Tax Cuts and Jobs Act “would build on the momentum generated from the healthy economy at the end of 2017,” the report said. “The loss of tax incentives under tax reform 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.”
If the economy grows unevenly, “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,” according to the report.
However, if the growth rate of the economy is closer to zero, “donors may adapt to tax policies in ways that lead to fewer gains to the charitable sector. Under these circumstances, broad implications for charitable giving are difficult to ascertain,” the report said.