Will Donors Give Less if Taxed More?

A recent article in Philanthropy Matters examined the current Obama administration’s proposal on changes in charitable deductions for taxpayers with adjusted gross income over $250,000 for couples and $200,000 for individuals. This proposal suggests reducing the value of itemized charitable deductions from 35% to 28%, and raising the marginal income tax from 35% to 39.6% for these high net worth households. So, what does this mean for philanthropy in the U.S.? Will donors give less if taxed more?

It has been estimated the cap on charitable deductions will have a small negative charitable effect. However, it is increasing the marginal income tax rate for wealthy taxpayers that would have a larger negative impact on charitable giving.

Using historical tax data, a study examined how itemized giving would have been impacted if the charitable deduction tax rate proposal had been implemented in 2009 and 2010. This study found an estimated decline of 0.4% the first year and an estimated decline of 1.3% the second year. Looking at its effect on high-net-worth household giving, there was an estimated decrease in itemized giving of 1.6% in 2009 and an estimated decrease of 2.4% in 2010.

What does this mean for your nonprofit? Cultivation and education of your top donors is now more important than ever. Keep them updated on changes in your organization; involve them when you are exploring new programs or campaigns; use the holiday season to thank individuals for their support. While changes in deductions may not significantly affect donations, we have seen over the past several years people giving to a smaller number of nonprofits. The organizations that cultivate and maintain relationships with their donors through informing, involving, engaging and thanking them on a continuous basis will be able to increase financial support.