Berkshire nonprofits fear new Republican tax law may discourage charitable giving
Berkshires — The presidency of Donald Trump has raised troubling questions in the progressive enclave of Berkshire County and sparked a resistance movement ready to spring into action at the slightest provocation.
Groups such as the Pittsfield-based Four Freedoms Coalition, have not only protested Trump’s policies generally but Four Freedoms has already announced it will organize an “emergency protest” if Trump fires Robert Mueller, the special prosecutor and former FBI director investigating Russian mischief in 2017 presidential election.
But the tax legislation recently passed by Congress and signed into law by President Trump has implications specifically for the Berkshires, where so many organizations depend upon charitable giving.
The new Republican tax law roughly doubles the standard deduction to $12,000 from $6,500 for single filers and to $24,000 from $13,000 for couples. That means fewer taxpayers will opt to itemize.
The wealthy can claim deductions far higher than the standard one, so they will continue to itemize and will presumably continue to give at the same rates, or perhaps even higher since the new tax law lowers the top income tax rate from 39.6 percent to 37 percent.
The concern is that middle-income donors will have less incentive to engage in charitable giving. The Indiana University School of Philanthropy estimates about 30 million households with incomes between $50,000 and $100,000 will be less likely to itemize their deductions on their taxes. These kinds of forecasts have led some to question whether philanthropy will become a “pursuit only for the rich.”
If indeed there is a significant drop in charitable giving as a result of the new tax law, it could be a big deal in the Berkshires, where nonprofit organizations power the economy to an astonishing degree.
A 2009 study by Williams College economics professor Stephen Sheppard and commissioned by the Berkshire Chamber of Commerce, found that the nonprofit sector was generating $1.9 billion in the Berkshire County economy every year and employing more than a third of its workforce. By 2012, that figure had risen to $2.4 billion from the nearly 375 Berkshire County nonprofits, including visitor impact generated by nonprofit expenditures.
Most nonprofit heads contacted by The Edge — and those who work with them — say it is too early to know precisely what the impact will be. All emphasized that individuals give to their organizations more because they believe in the cause and not because of tax advantages.
“I think that it may be too early to tell whether there will be any significant effect on charitable giving,” attorney Rich Vinette, who does a lot of work for nonprofits in the Berkshires. “I think that most people give because they care about the cause or issue that the charity is addressing, not because they are calculating a deduction.”
But none of the organizations thought fewer incentives to give to charity would be a positive development either.
“There is a strong ethic of giving in our region because of our close relationships, affinity for our communities and commitment to nonprofits that enhance the quality of life,” said Berkshire Taconic Community Foundation President Peter Taylor. “The powerful culture of generosity here is not likely to change.”
With an office in Sheffield, BTCF is a public charity that manages more than 500 funds with charitable assets of almost $132 million. Taylor noted that various reports indicate that, with the doubling of the standard deduction, the number of filers who itemize may drop from approximately 30 percent to perhaps from 15 percent or even under 10 percent.
A possible work-around being suggested by some tax advisors, Taylor said, is for donors to “bundle” or “bunch” their gifts every other year, so that one year they might give a lot and itemize and the next take the standard deduction and reduce their levels of giving.
Taylor said it’s also possible to “mitigate some donor concerns with tools such as donor advised funds,” which provide “a tax incentive upfront [and] donors can use these funds to sustain their level of giving to nonprofits on an annual basis.”
What is the mood among BTCF donors? Taylor said time will tell: “While much is yet to be learned for us and for our donors, we know that in the end, donors will want to contribute to the ongoing financial stability and effectiveness of the nonprofits they care about, and so does Berkshire Taconic.”
At Community Health Programs, a Berkshire County healthcare provider with 35,000 patients, CEO Lia Spiliotes was cautiously optimistic that charitable giving to her organization would remain at current levels.
“I don’t know how our particular donor base will respond, but I’m confident that because our mission is so meaningful, they are giving to us not because of a tax break,” Spiliotes said in an interview. “I fully believe our donors will stand by us.”
Headquartered in Great Barrington, CHP has nine locations throughout the county, with 220 employees and an annual budget of about $22 million. Spiliotes said CHP’s clientele is roughly evenly divided between those who use private insurance, those who are on Medicare and those who use Medicaid or MassHealth. A small percentage is uninsured.
According to CHP’s tax filing from 2016, more $4.2 million, or about 28 percent of its income, was received in the form of grants and from donations from individuals.
“For about 40 years, we’ve been getting donations from across the income spectrum,” said Spiliotes, who has been CEO for two years. She said CHP started about 40 years ago as Children’s Health Programs and that “some of our original donors are still with us.”
“The breadth and depth of what we offer trumps what you’re going to do with your taxes,” Spiliotes said. “The spectrum of our program is what turns people on. I’m hoping there’s strength in our donors. I feel confident. We’ll see what the numbers show.”
At the Norman Rockwell Museum in Stockbridge, Chief Operating and Financial Officer Jill Gellert told the Edge, “There is just so much uncertainty around implications [of the new tax law] that it’s too early to make large conclusions.”
Gellert added that she has “seen organizations reminding donors that the IRA rollover still has a huge tax advantage and that it’s a possibility.” Click here to read about the IRA charitable rollover and its tax advantages.
According to its 2016 IRS filings, the Rockwell Museum received more than $2.2 million from individuals and grants, out of total revenues of just over $5.1 million.
And in addition to the tax law, the museum is facing the uncertainty of the Trump administration’s push to eliminate or scale back funding from the National Endowment for the Arts and National Endowment for the Humanities, which accounts for about 8 to 10 percent of the museum’s philanthropic income and about 2 percent of its operating budget.
“We do get a good portion of our contributions from individuals and through members,” Gellerty explained. “But the federal grant situation is still up in the air.”
Gellert pointed out that the stock market, from which foundations derive much of their revenues, has been quite strong this year. It is therefore possible that if individual giving declines as a result of the tax law or if federal grants dry up, foundation giving might rise.
Also of concern is that the new tax law, which caps the federal deductibility of state and local taxes at $10,000 per year and would hit hardest those who live in high-tax states like Massachusetts. The concern is that if taxes effectively rise in those states, then donors will have less disposable income and therefore be less charitable.
That provision of the law had drawn sharp criticism from Republican Massachusetts Gov. Charlie Baker, who has said he has “serious concerns,” and Democratic New York Gov. Andrew Cuomo, who has called that part of the law “unconstitutional” and has vowed to sue the federal government over it.
For a comprehensive rundown on how the new tax law will affect other sectors, see this summary prepared by the National Council of Nonprofits. And to learn more about how the law will affect nonprofits, the council is holding a free webinar on Thursday, Jan. 11, at 3 p.m. Click here to register.
At the Mahaiwe Center for the Performing Arts in Great Barrington, Executive Director Beryl Jolly remained optimistic: “Our hope is that our donors and members continue to support the Mahaiwe due to their passion for and commitment to our programs, and that the changes in tax laws won’t create a terrible hit.”
Jolly added that the Mahaiwe relies on donations for half of its $2 million annual budget, “so the well-being of the Mahaiwe, as with so many valuable nonprofits in our region, depends on the generosity of our community.”
Smaller nonprofits could feel the pinch but again it’s unclear at this point. At Greenagers, an organization in Housatonic that provides employment and volunteer opportunities for teens and young adults in the fields of conservation, sustainable farming, and environmental leadership, Executive Director Will Conklin says he is confident that his donors “believe in the mission and whether or not they can itemize their contribution is of secondary importance.” But Conklin was concerned, however, about “a federal tax code that implicitly diminishes the role nonprofit organizations play in our society.”
“Removing one more reason for citizens to give to organizations that help the poor, teach our children, fill our communities with art and music, and care for the sick tears at the fabric that holds our society together,” Conklin said. “It is not surprising that this initiative comes from our current administration but it is still wholly disheartening.”