New Tax Bill Poses Challenges to Sector

Blog post by Deb Dubin, President & CEO, Gateway Center for Giving.


The federal Tax Cuts and Jobs Act (H.R. 1/Public Law 115-97), enacted on December 22, 2017, mandates broad changes in tax policy. This law has created a great deal of uncertainty for the philanthropic sector, and especially for charitable nonprofits that will now be challenged to maintain their missions with diminished sources of funding.

The IRS has yet to provide much in the way of guidance on the statute’s implications. What we do know is that tax cuts mean revenue cuts, and revenue cuts mean spending cuts. Meanwhile, human needs continue to escalate. As states shift their budgets to accommodate substantial spending cuts at the federal level, available government resources for many social programs will be limited accordingly and program eligibility requirements will be tightened.

This tells us that the demand for philanthropic resources will be high.

Funders and nonprofits must devise new strategies to address these changes. As funders, GCG Members need to consider what new challenges our grantees may face. General operating support (GOS) funding will be important in helping nonprofits cope with the new realities. For example, with less access to affordable health insurance and higher premium costs, it is likely that grantees’ annual operating costs will increase. At the same time that funders are re-assessing their giving protocols, nonprofit organizations and service agencies will find it important to engage in scenario planning as well as considering ways to diversify revenue, with less reliance on government funding.

Donor contributions: With respect to individual donor contributions, the outlook is also less than positive for nonprofits that depend on this source of revenue. Under the new law, the standard deduction is doubled for taxpayers. Therefore, fewer people are expected to choose to itemize their returns and list individual deductions for charitable giving (from approximately 30% of all taxpayers to 5% of them, post-implementation). As a result, research by Indiana University’s Lilly Family School of Philanthropy predicts a reduction of charitable giving of up to $13.1 billion a year. In turn, the National Council of Nonprofits estimates that this drop in giving would cost 220,000 to 264,000 U.S. nonprofit jobs.

Advocacy: In this new era, advocacy is critical in order to help organizations realize their missions and to set priorities in partnership with policy makers. To that end, BoardSource has launched the “Stand for Your Mission” initiative. Consider ways that your organization and your board can join the conversation, whether that is through research, convening, educating, or direct funding.

GCG plans to stay on top of the emerging news on this topic, in conjunction with national efforts of our colleagues at the United Philanthropy Forum. We are also reaching out to our regional NPO sector partners to exchange information and stay informed. We’ll share what we learn, and we expect to host a program for GCG Members in the coming months.

Meanwhile, for up-to-date information on the new law’s many implications, including various analyses of how the tax bill affects the philanthropic and charitable sectors, check the National Council of Nonprofits resources page.

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