I recently did a webinar on the new tax plan and its impact on giving in 2018, and want to recap my thoughts for you here. This represents my perspective, and I’ve included many of the sources I used.
New Tax Plan Overview:
- Corporate tax rate reduced from 35% to 21%
- Most individual tax rates reduced
- Standard deduction was nearly doubled (30% of taxpayers itemized in 2017, and with the new deduction this is expected to drop to 5%)
Estimated Impact on Giving:
I’ve seen estimates that charitable giving will drop by $4.9-$20 billion. The School of Philanthropy at Indiana University projects giving to drop by $13 billion (-4.6%).
The estimates all assume that tax policy drives giving decisions. In reality, emotion, not reason, is the key driver of charitable giving. Most donors give because of a desire to make a difference.
I believe total giving will grow as long as the economy grows. Giving as a percentage of GDP has centered on 2% since 1956. Wealthy donors will benefit from the tax cut and will have more after-tax dollars to donate. And as the market rises, they will have more appreciated assets.
The biggest concern is from the donor segments that itemized in 2017 and will not itemize in 2018. This means nonprofits will need to pay extra attention to mid-level donors. Since 88% of gifts come from 12% of donors*, your Mission will need a strong Middle/Major donor strategy.
Where are the biggest opportunities?
- Middle donors. In the new tax plan appreciated assets, Donor Advised Funds (DAF) and IRA distribution rules were left untouched. There are currently 85,000 DAF accounts holding $85 billion in irrevocable assets (average: $289,809). This means your biggest opportunity is to start or double down on your Middle donor program. Be sure you are treating these donors with care and communicating to them in timely and impactful ways.
- Retention. 2018 is a year to make retaining your current donors a priority. You can do this in several ways:
- Grow your monthly giving program
- Improve stewardship. Move from transactional asking to relationship building
- Showcase your impact
- Tell powerful stories of the lives you have changed
In summary, wealthier donors won’t be impacted by the tax bill, but Middle donors should be cultivated more than ever to increase their loyalty. And because most donors give to make a difference, I don’t believe giving will decrease the way others have predicted.
On a personal note, while I make a change in my career, my passion and concern for your ministry is something that will never change. Thank you for the privilege and opportunity to serve your Mission.
— Chip Grizzard, Chairman