Charities Claim Donations Will Be Slashed by Tax Bill

The House and Senate negotiators who ground out a tax-overhaul bill last week look like summertime Santas to the millions who stand to net big tax cuts from the talks. Bill Kliewer sees only 22 Scrooges.

Kliewer, an executive of Pasadena-based World Vision, figures that the 22 negotiators’ handiwork could cost his $150-million-a-year hunger-relief charity $15 million in annual donations. His misery has company: Harvard University Vice President John Shattuck expects the tax bill to lop 15% off alumni gifts, which have averaged $70 million yearly in this decade.

And John Weymueller, the American Lung Assn.’s Washington representative, would rather not contemplate the bill’s impact on that group’s $80-million-a-year fund-raising effort. “It’ll have an effect,” he said.

Would Strip Incentives

Their fears are probably exaggerated, economists say, but there is little doubt that the compromise tax bill headed for congressional floor votes would lighten the tin cups of disease-fighters, famine-relievers, churches and anyone else who raises money. If enacted, the legislation would strip tax incentives for giving at virtually every level of largesse:

--Some of the rich would lose a lucrative tax break for donating stocks, bonds and any other property that had increased in value while they owned it. Although they could continue to deduct the current value of the property, that deduction might do them no good. The reason: The increase in the value would be subject to the new 21% “alternative minimum tax” that must be paid by some taxpayers with uncommonly large tax deductions.

--The middle class would retain the itemized deduction for charitable gifts but the value of that deduction would decline as the top marginal tax rate plummets from its present 50% to an effective 33% in the compromise bill. Simply put, a one-dollar donation effectively costs a 50%-bracket taxpayer 50 cents under current law but that cost would rise to 67 cents should the 33% top rate in the compromise tax bill become law.

--Those of modest means would lose the only incentive for giving that they now have: the $100 non-itemizer deduction for donations to nonprofit organizations. The non-itemizer deduction is scheduled to expire in 1987 and the tax bill would not renew it, despite pleas from a flock of charity-industry lobbyists.

“This tax law probably has dealt a catastrophic blow to charitable giving,” Kliewer said this week. “We’re anticipating, even conservatively, that we could see as much as a 10% decline in income as a direct result of this law. I’ve heard some say charitable giving could decline as much as 20%.”

Economic studies cited by nonprofit groups conclude that the loss of the non-itemizer deduction alone would cost charities $6 billion in gifts annually, or about a quarter of the $24 billion in non-itemized gifts donated by private citizens in 1986. And it was estimated that the drop in tax rates would cost charities $6 billion of the $42.4 billion in itemized private giving.

To some economists and other experts, those predictions sound suspiciously like the dire warnings issued by virtually every special interest affected by the tax bill. The other side of the 1668245870will put more money in consumers’ pockets to donate to charities--$121.7 billion over five years.

“What people have found is that giving is sensitive to tax policies,” said a top expert on the subject, Lester Salamon of the Washington-based Urban Institute. “But you can’t separate the effects out cleanly. When you lower the tax rate, you increase the price of giving, but you also increase the amount of income people have.”

What is clear is that curbing the charitable donation deduction would save the federal government a lot of money, some of which would be returned to consumers in the form of lower tax rates.

Tax deductions for gifts to all nonprofit organizations cost the Treasury $13.3 billion in fiscal 1985, the federal budget office says. About $12.1 billion of those deductions were claimed by individuals and $1.2 billion by corporations.

All told, about 35-million households claimed deductions on $42.4 billion in itemized gifts in 1984, the latest year for which data is available, the nonprofit lobbying group Independent Sector estimated.

Saving $1.4 Billion

Congressional experts have predicted that eliminating the non-itemizer deduction for gifts would save about $1.4 billion in tax revenues annually for the next five years, and changing the rules on appreciated property gifts would save another $580 million. Churches and other charities with strong bases of supporters are likely to suffer less than groups with few loyal, regular donors. Charity experts called it doubtful that the weekend take from church collection plates would be much affected by the loss of the non-itemizer deduction, which allowed each taxpayer to claim up to $100 in donations annually.

But groups like World Vision, which claims to get 70% of its donations from non-itemizers, are more wary. “We’ll have to work harder and smarter because we have a scriptural and spiritual mandate to help the poor in the name of Christ,” Kliewer said. But he added: “At some point, people get pragmatic and bottom-line oriented, and I don’t know what that will do to us in the long run.”

Groups that rely heavily on big-ticket gifts--universities, cultural organizations, hospitals--may be hit harder.

Changes in the appreciated-gift rule will remove much of the fiscal incentive for giving away stocks and bonds and may sometimes even raise a donor’s taxes because the gift itself would make the donor subject to the minimum tax, said John J. Schwartz, president of the American Assn. of Fund-Raising Counsel in New York.

Schwartz said the change is especially threatening to higher education, which covets such multimillion-dollar gifts as “pacesetter” donations to sustain major fund-raising efforts. At Harvard, gifts of appreciated property average close to 30% of annual donations, Shattuck said.

All charities would be hit by the drop in tax rates and the lower value of charitable deductions. But those groups that target their appeals to middle and upper economic groups may be pinched harder by a side effect of low taxes: a higher income floor for claiming itemized deductions at all.

Should the tax-overhaul measure become law, the number of households filing itemized tax forms would decline from 40% of all filers to 20%.

How much will that hurt? “Generally, we’re all concerned about the impact of these changes,” Schwartz said. “I think giving will continue to grow but I don’t think it will grow as much. And it certainly won’t grow as much as is needed.”