The just-signed Tax Cuts and Jobs Act, like all income tax laws, will reward some behaviors and penalize others. Unfortunately for nonprofits, the new rules are going to discourage charitable donations.
At a time when discretionary government services are diminishing, and as deeper cuts are contemplated, the role of nonprofits in filling the holes in the social safety net is becoming more essential. Charities have been stepping up to provide emergency relief and long-term aid for those who lost everything in California's wildfires, and in the floods and hurricanes that decimated the Gulf Coast and Puerto Rico. They've responded to the mass shootings in Las Vegas and Texas. And day in, day out, they work to meet the needs of abused women, hungry children, the homeless, the disabled.
It's never easy to keep social service charities running; they operate on tight margins in the best of times. Now the new tax law, according to estimates from the Council on Foundations, will drain $16 billion to $24 billion a year from the nonprofit sector going forward.
The problem is that while the Tax Cuts and Jobs Act preserves the deductibility of charitable contributions, it restructures the system so that millions will lose incentives to give. Most people donate from their hearts to causes they care about, regardless of taxes. It is undeniable, however, that the reward for giving will go down and the cost of giving will go up.
Here in California, the effect of the new law will be particularly painful. The tax reforms limit the deductibility of state and local income and property taxes to $10,000. This is a high-tax state, and many residents' state and local tax bills will far exceed this limit. The loss of this valuable deduction will leave them with less to give to their favorite charity.
The Tax Cuts Act simultaneously raises the standard deduction to $24,000 for a married couple. For millions it will no longer make sense to itemize, and that too means fewer charitable gifts: You can only deduct donations if you itemize.
Twenty years ago, the estate tax exemption was $600,000 for an individual — estates worth more than that were taxed. Next year, the exemption will be over $11.2 million for an individual. Whatever your views on estate taxes, it should be clear that exempting larger and larger amounts to lower the tax burden on heirs erodes the incentive to leave bequests to charity.
Nonprofits will need to prepare for a tough 2018 and beyond. The uncertainty alone — people won't know what their future tax bills will look like — will put a damper on donations. And even before the disincentives in the new tax law took shape in Congress, the catastrophes of 2017 had created "donor fatigue."
For those who want to give, it is more important than ever to donate with your heart and your mind. Get to know the charities that interest you. Pick a cause that's close to your heart, whether it's answering an urgent call to help victims of disasters or supporting long-standing needs. Right now, consider donating before Dec. 31. You are more likely to itemize deductions when you file your 2017 taxes than under the new law, so what you give now could be more valuable to you this year than next. And it will help your favorite charity steady itself for an unpredictable future.
A few weeks ago, the nonprofit I co-founded, which specializes in horsemanship as therapy, had a great day. We took 80 people with disabilities for a trail ride in the Santa Monica Mountains. Our staff and volunteers got up while it was still dark, loaded 16 horses and tack into vans and trucks, got them and our riders to the park at dawn, and then set up for a day of riding. For those who usually spend their days in wheelchairs, it's hard to overstate the sense of freedom and beauty a horseback ride in the wild can bring.
We know we can't change the world, but we can change lives. The Tax Cuts and Jobs Act will only make it harder.
Bryan McQueeney is the chief executive of the nonprofit Ride On Therapeutic Horsemanship in Los Angeles.