New tax plan could impact local nonprofits

The Republicans’ sweeping overhaul of the nation’s tax laws contains a change that could have a negative impact on nonprofits and religious organizations that depend on charitable contributions. The change has caught the attention of national organizations like United Way, as well as smaller, local nonprofits that fill vital roles in the Flathead.

The GOP tax plan — expected to be signed into law by President Trump later this month — doubles the standard deduction, which is basically the amount of household income that is not taxable so long as no other deductions are taken.

Previously, about 70 percent of American taxpayers took the standard deduction because it was larger than what they would have received had they added together all their smaller donations, according to the Tax Policy Center, an independent tax analysis group backed by the Urban Institute and the Brookings Institution.

Doubling the standard deduction effectively takes away the tax benefits of giving to charity from an even larger slice of the American taxpayer pie. Typically, taxpayers that found it lucrative to itemize their taxes were on the high end of the income spectrum. The Tax Policy Center estimates that of the 45 million households that would have likely itemized in 2017 and therefore seen the tax benefits of charitable giving, only about 7 million would do so under the new law.

The effective impact is charitable contributions get more expensive for people who used to itemize but no longer will under the new law. Someone who doesn’t itemize their taxes and makes a $100 charitable donation won’t see a difference on their taxes. Someone who does itemize their taxes rather than taking that standard deduction and makes a $100 charitable donation will get a tax bill that is in the neighborhood of $25 lower, depending on their income bracket.

It has a potential to make a big impact nationally, and Northwest Montana is not insulated from the change.

Linda Engh-Grady is the president of the Whitefish Community Foundation, and she thinks the impact of this change could be big for organizations that depend heavily on donations in the Flathead Valley.

“I think it’s going to be very interesting, because with a possible 95 percent of the American public not having to itemize, they will not take that charitable deduction,” Engh-Grady said. “The scary thing is we don’t really know what kind of impact this will have on charitable giving. Will people still give?”

Few would argue that tax incentives are the prime motivation of philanthropy, but Engh-Grady cited a study from U.S. Trust, a wealth-management company associated with the Bank of America, that reveals that for many Americans it is an appealing benefit that can push them over the top or increase the amount they contribute at the end of the year.

Just under 20 percent of people surveyed reported that tax incentives were always a motivating factor in their giving. Over 50 percent said it sometimes played a role in their decision to make a donation.

It’s difficult to determine precisely how big the drop in giving will be locally for at least another year. Most organizations that receive a high volume of charitable donations receive a big bump in December as people examine their year-end finances and prepare for tax season.

Some experts have pushed the idea of donating extra in 2017 to take advantage of the tax credit while they are still itemizing, then curbing their giving next year to make up for it. That will help some charities in the short-term, but provides no long-term relief for organizations who are unsure how the changes will affect them.

Engh-Grady said that while giving may drop, she is confident Flathead Valley donors will still show up in a big way at the end of each year.

Tracy Johnson, executive director of the Hockaday Museum of Art, said they have had year-end donors note that they are looking to make sure they get their donations in before the deduction becomes irrelevant.

She said she wasn’t familiar enough with the legislation to comment about the specific impact to the Hockaday, but cited materials from the American Alliance of Museums, which has taken a stance against anything that diminishes the number of people who itemize their taxes because it will lead to less donor money.

The Glacier National Park Conservancy is another local nonprofit that pulls in donations from across the country and sees a peak in December from year-end donors.

Doug Mitchell, the executive director, said it was impossible to tell what the impact would be, but he was hopeful that if his organization did a compelling job showing donors all the good work they accomplish, the hit wouldn’t be too bad. He said he hoped they would be able to capitalize on the other reasons people donate to make up for whatever incentive the deduction will no longer provide.

“As the saying goes, the proof of the pudding is in the eating,” Mitchell said. “Only time is going to tell what the impact of that change is going to be.”

Reporter Peregrine Frissell can be reached at (406) 758-4438 or pfrissell@dailyinterlake.com.