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How tax reform proposals might impact charitable giving and nonprofits

October 26, 2017

Alan Abramson

Tax reforms under consideration on Capitol Hill call for an increase in the value of the standard tax deduction. Having more taxpayers who use the standard deduction will reduce the number who itemize their deductions, and that could have an impact on charitable giving, said Alan Abramson, director of the Center for Nonprofit Management, Philanthropy and Policy at George Mason University’s Schar School of Policy and Government.

Abramson cites studies projecting charitable contributions dropping by 5 percent if tax reforms are enacted.

“Nonprofit leaders are trying to offset this possible reduction in charitable giving by arguing for new tax law provisions that would allow non-itemizers to deduct their charitable contributions,” he said.

“The current versions of tax reform would undoubtedly be painful for many nonprofits. However, it is important to recognize that for many nonprofits, private philanthropy makes up only a modest portion of their overall revenue and so a 5-percent reduction in private giving would likely not be life-threatening.”

Charitable giving took a major hit during and after the Great Recession, putting many nonprofits in jeopardy or out of business. But in 2016, said Abramson, donors were back to stroking checks. “Private giving from all sources—individuals, foundations, corporations and bequests–totaled $390 billion, according to Giving USA,” he said. “At its low point in 2009 during the recession, giving amounted to $275 billion.”

But with the effects of the recession still lingering, giving remains fragile, with an increase of an average of less than 1 percent per year during the past 10 years, Abramson said, after adjusting for inflation.

More damaging than the reduction in giving would be the reduction in federal support, which provides up to 30 percent of nonprofit revenue. Private philanthropy provides 10 to 15 percent to the nonprofit sector as a whole.

“The significant reductions in government spending on social programs that have been proposed by the Trump administration would cut nonprofit revenue more and inflict more pain on nonprofits than tax reform would,” he said.

Alan Abramson can be reached at 703-993-8189 or aabramso@gmu.edu.

For more information, contact Buzz McClain at 703-727-0230 or bmcclai2@gmu.edu.

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George Mason University is Virginia’s largest public research university. Located near Washington, D.C., Mason enrolls 36,000 students from 130 countries and all 50 states. Mason has grown rapidly over the past half-century and is recognized for its innovation and entrepreneurship, remarkable diversity and commitment to accessibility.