Tax Law Won’t Hurt Gifts, Big Donors Say

A retired schoolteacher called Chapman College President G. T. (Buck) Smith last month to tell him that she wanted to make a substantial donation to her alma mater. However, she insisted that the gift be made by Dec. 1.

“She sounded so urgent that I just assumed she had to make the gift before the new tax law takes effect,” Smith said.

But when Smith met with the 77-year-old woman, she told him that she had placed this deadline on making her gift 15 years ago. That’s when she began shepherding her investments so she could leave a large legacy to Chapman.

The ballyhooed year-end boom in charitable giving expected to be spurred by people taking advantage of tax breaks that will be eliminated Jan. 1 has turned into a bust in Orange County.

In contrast to some reports of dramatic increases in donations in other parts of the country, interviews with five of the county’s leading donors and spokesmen for the county’s five largest nonprofit organizations--charities that receive between $20.2 million and $1.3 million annually in contributions--show people aren’t stampeding to charities to increase their giving.

“This year, I’m giving exactly the same amount that I’d planned to before the tax law changed,” said Betty Hutton Williams, 73, chairman of Hutton Associates, a real estate development company in Orange.

Williams is a donor to the YWCA Hotel for Women in Santa Ana, the National Council of Christians and Jews, the Cal State Fullerton Gerontology Center, the Orange Assistance League, St. Joseph Hospital and 15 other charities in the county.

Under the new tax law, there will be a reduced tax benefit in making charitable contributions. This year, taxpayers in the 50% bracket can deduct 50 cents for every dollar contributed to charity. Under the new law, they will be able to deduct 33 cents when the top income bracket ultimately falls to 33% in 1988.

Those who don’t itemize deductions on their tax returns won’t be able to write off any of their charitable contributions. And many upper-income taxpayers won’t be able to take large write-offs for contributions of real estate, stocks, bonds and other property that’s gone up in value.

Newport Beach philanthropist Warren Hancock said his level of giving this year will remain the same, despite the fact that it will cost more next year.

“Whatever the tax law is, it still costs money to give it away. Tax deductions just discount your cost of doing so,” he said.

“You’ve got to be motivated by other reasons than tax incentives to donate to causes you believe in or identify with,” said Hancock, 58, the former owner of Hancock Laboratories in Anaheim, which he sold for $25 million in 1979.

Last year, charitable giving in the United States increased 9% over the previous year, to $80 billion. This year, giving is expected to increase 10%, estimates the American Assn. of Fund-Raising Counsel, an umbrella organization of nonprofit fund-raising counseling firms.

Mirroring the national pattern, many of Orange County’s 4,000 charities are expected to experience a 10% increase in giving, to $160 million this year, said Stephen Christensen, a UC Irvine administrator. He is president of the Orange County chapter of the National Society of Fundraising Executives, a 6,550-member trade association for professional fund-raisers.

“People give because they’re charitably motivated, not because of taxes,” Christensen said. “The tax law is just one of perhaps 10 factors that influence giving because people give over a period of years--not all at once.

“The changes in the new tax law are just not enough to have much of a positive impact on giving this year--or much of an adverse impact in future years.”

No Increase

Even smaller charities like Goodwill Industries of Orange County, which depends on donations of used furniture and clothing for resale in Goodwill stores to help fund its employment and vocational rehabilitation programs for the disabled, haven’t experienced any increase in tax-motivated giving.

“This time of the year--around December when people get into the Christmas spirit--we always see an increase in giving over other months,” said Dan McCready, who oversees the collection of used goods for Goodwill. “But giving is at the same level it was last year. We haven’t seen anything happening out of the ordinary.”

Goodwill also conducts an annual fund-raising campaign, and this year it is seeking to raise $500,000, $100,000 more than last year. “There’s been an increase in giving because we had a higher fund-raising goal this year,” said Robert Henning, Goodwill’s fund-raising director.

“We don’t attribute this increase to the fact that with the new tax law it’s going to be a little more expensive to make donations next year.

Added Henning: “Our average donor gives between $25 and $100, but some people make larger gifts. This year, more of these larger donors have changed their method of giving; they’re giving us appreciated stock (which could lose much of its tax deductibility next year) rather than cash.”

Predicted Plummet

In August, many spokesmen for churches, colleges, cultural organizations, hospitals, organizations that fight disease and hunger and other nonprofit groups predicted that the newly enacted tax law would result in a dramatic increase in contributions this year, followed by a plummet in giving in succeeding years.

“This tax law probably has dealt a catastrophic blow to charitable giving,” then warned Bill Kliewer, an executive of the World Vision hunger relief charity in Pasadena.

“We’re anticipating, even conservatively, that we could see as much as a 10% decline in (our $150-million annual income) as a direct result of this law. I’ve heard some say charitable giving could decline as much as 20%.”

Chapman’s Smith, a nationally renowned fund-raising expert who coordinated the college’s campaign that raised $16 million this year, dismissed this assessment.

“There’s been this hue and cry in the press by some nonprofits that the new tax law is going to decrease giving in coming years,” Smith said. “Well, I heard the same thing in ’81 and ’69 when there were other significant tax changes. Yet, giving has gone up each year.”

Smith’s view is shared by spokesmen for the county’s four other charities with the largest annual fund-raising campaigns: UC Irvine, $20.2 million; United Way of Orange County, $16.5 million; Orange County Performing Arts Center, $15 million, and March of Dimes of Orange County, $1.3 million.

Doubt About Impact

Their experiences in the four months since the new law was enacted cause them to doubt it will have much impact on charitable giving.

“Typically, people who make substantial gifts plan to do so over two to four years,” said Tom Pascoe, director of fund raising for the Orange County Performing Arts Center. “If people say that they are going to give a certain amount over four years, it might be beneficial for them to give a lot this year because of the impending tax changes.

“But we’re not seeing this happen. People are sticking by their long range giving plans. I think it’s because people base their giving pattern more on their disposable income; there’s nothing that’s happened to cause people to suddenly have a lot more money to give away this year.”

Despite the loss of these incentives to give to charities, Orange County fund-raisers say this won’t cause people to decrease giving.

“Studies have shown that people don’t give to charities for tax reasons,” Smith said. “You don’t make money by giving it away.”

Last month, Richard Matheny, a UC Irvine fund-raising administrator, presented the findings of a study he did explaining why people give to charities.

At a meeting of the Council for the Advancement and Support of Education attended by 200 professional fund-raisers in Philadelphia, Matheny reported that tax incentives played almost no role in motivating people to donate to charities.

Just Reduce Cost of Giving

“No one wakes one morning and says: ‘By God, I’m going to give to UC Irvine because I don’t want my money going to Uncle Sam.’ People give because they already believe in philanthropy; tax benefits just reduce their cost of giving.”

Matheny’s study found that people give to causes they believe in for four reasons: the need to memorialize themselves or loved ones; the need to perpetuate the donors’ values or opinions; the sense of belonging people develop by giving, and out of a sense of duty to their communities.

“Giving out of a sense of duty is very important here in Orange County,” Matheny said. “People go through three phases in their life when it comes to wealth: accumulation, maintaining or keeping it, and distributing it.

“We’ve got a tremendous number of people in the county who are in the distributive phase of their lives,” Matheny said. “They made their money in the late ‘50s, ‘60s and ‘70s. Now, they’re motivated to give it away out of a sense of duty. They want to pay back the area where they got their money from.”

Taxes Play Little Role

County philanthropists agree that tax considerations play little, if any, role in their giving. “I’m not giving any more this year than I’d planned to (before tax reform),” said Charles Hester, a 73-year-old real estate developer from Corona del Mar.

“Maybe some people give for tax reasons, but I give because I believe in the cause. My wife (Nora) and I just give the maximum we want to--and face the tax consequences later.”

Hester, president of the board of Childrens Hospital of Orange County, wouldn’t say how much he donates annually. However, he did say he was a contributor to the Orange County Performing Arts Center, Chapman College, Hoag Memorial Hospital Presbyterian, Mardan Center of Educational Therapy, United Way of Orange County, Orangewood, UC Irvine’s Beckman Laser Institute and Medical Clinic, Search Foundation, Human Options and Cal State Fullerton’s Gerontology Center.

Some donors, like George L. Argyros who supports 25 charities, said the impending tax changes had caused them to change the timing and type of their contributions to charity.

Appreciated Property

“More of our gifts this year will consist of appreciated property because in future years we’ll lose tax benefits for gifts like this,” said Argyros, owner of the Seattle Mariners baseball team and the Arnel Development Co. in Santa Ana.

Argyros, 49, of Newport Beach stands to split a profit of about $30 million when the proposed sale of AirCal, of which he is one of two principal shareholders, is completed next year.

However, Argyros and other donors said this change in timing and type of donations did not actually represent any increase in giving because these donations merely fulfilled multiyear pledges they had already made or were part of their long-term giving plans.

“When you total up the giving for both ’86 and ‘87, you’ll find that the amount people are giving for those years is no different than what they’d planned to give before tax revision,” Argyros said. “After ‘87, giving is going to return pretty much to the same pattern it had before the tax law was changed.”

Tom and Elizabeth Tierney of Santa Ana Heights decided to give UC Irvine $250,000 in real estate this year rather than next year.

If the Tierneys had waited until next year to make this gift they would not have been able to deduct the $250,000 the property is worth now, said Tierney, president of Vita Tech, a vitamin manufacturing company in Tustin. Instead, they would have been limited to deducting only what they paid for the property years ago.

First Installment

However, Tierney, 48, added that this was the first installment of the $350,000 that he and his wife had pledged last year to give UC Irvine over three years.

Tax reform has not caused the Tierneys to alter their other charitable giving. They had pledged to give $75,000 to the Laguna Beach Art Museum and $100,000 to the Orange County Performing Arts Center over three years, beginning this year.

They haven’t given any more than the third they had originally planned to give this year. Nor did they increase their giving this year to the three other charities in the county they support.

Although changes in the tax law will make charitable donations more expensive, Tierney said, “Elizabeth and I won’t diminish our giving to charitable organizations.

“We give to individuals and causes because we’re emotionally attached to them. Tax breaks are just a discount on the cost of doing something we would do anyway.”

Interestingly, if the Tierneys had increased their cash contributions to charities this year, it would have cost them more on their income tax.

Indeed, Dan Bolar, a tax partner in the Orange County office of the national accounting firm of Deloitte, Haskins & Sells reports that half his clients wouldn’t benefit on next year’s taxes by giving more to charities this year.

High-Income Individuals

While most of Bolar’s work is for corporations, he does serve about 75 individuals with high incomes--people earning from $100,000 to $10 million annually. They make charitable contributions ranging from $50,000 to $2.5 million yearly.

Bolar recommended to clients who would benefit by increasing charitable contributions that they do so this year because of the tax advantages. However, he expects no more than a quarter will heed his advice.

“Some of my clients told me they believe that if they double or triple their giving this year, they feel they still will be asked to give next year--though they would have told the charities up front what they’re doing.

“They say they’ll feel guilty if they say no; they’re afraid they’ll end up giving more than they planned to.”

Bolar said the other reason his clients are spurning tax advantages and not increasing their donations is because “charities develop their budgets based on the level of money they receive from year to year.

“Some clients aren’t increasing their giving this year--and offsetting it with decreased donations in future years--because they say it’ll make it to difficult for charities to come up with accurate budgets.”