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Financial Planning > Charitable Giving

Charities on Edge Ahead of Trump Era

By Michael S. Fischer

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U.S. charities and foundations are on edge about how the stated policies of the incoming Trump administration and the Republican-majority Congress will play out in the coming year.

Nonprofit groups could see the charitable-giving incentive at risk in an expected tax overhaul, and federal spending cuts would gouge support for nonprofits, especially those with government contracts, according to an analysis by The Chronicle of Philanthropy.

For their part, foundations might face escalating pressure to fill those gaps at a time when their endowments and “in perpetuity” life spans are coming under new scrutiny.

Charitable Deduction

The Trump White House and congressional Republicans seem certain to pursue a major tax overhaul in 2017, with potentially big effects on nonprofit organizations.

These could include limiting the charitable tax deduction, which many in the nonprofit sector predict would reduce giving by wealthy individuals. Also likely are tax cuts for wealthy and middle-income families that could reduce their incentive to give. 

The Chronicle noted that the message coming from the Trump camp has been ambiguous. On the campaign trail, Trump proposed a tax plan that called for a cap on all write-offs, including for charitable donations. But some of the president-elect’s advisors opposed limiting giving incentives.

Trump will release his first budget message during the first quarter.

The Chronicle said nonprofits have powerful supporters on Capitol Hill. The chairman of the House Ways and Means Committee, Rep. Kevin Brady, R-Texas, proposed a tax overhaul in June that appeared to maintain the charitable deduction.

Sen. Orrin Hatch, R-Utah, chairman of the Finance Committee, has expressed support for charitable giving incentives in the past. 

Geoffrey Plague, vice president of public policy at the Independent Sector coalition of nonprofits and foundations, told The Chronicle that nonprofit leaders would keep tabs on changes to the standard deduction, whereby people can subtract a set amount from their taxable income without itemizing.

“If people are able to save more on their taxes by opting for the standard deduction, fewer people will itemize, eliminating an incentive to give,” Plague said. 

The Chronicle said Republicans were also likely to cut income-tax rates, something experts said would reduce charitable giving by the wealthy in the short run because it would become less valuable from a tax perspective. Longer term, having more money might incentivize the wealthy to increase giving. 

Federal Spending Cuts

Social-service groups that serve poor populations or that directly receive federal grants face austerity if Trump realizes his promise to reduce domestic spending.

The Chronicle said that on the campaign trail, he pushed a “penny plan” to reduce nondefense domestic spending by 1% each year for 10 years, with entitlements, such as Medicaid, Medicare and Social Security, exempted. Trump also proposed ending budget detente, whereby caps on federal spending were apportioned equally between defense and nondefense programs. He said he would lift the caps on military spending.

As a result, The Chronicle said, food stamps, housing aid and federal support for education, among other programs, faced potentially deep cuts.

It noted that the Committee for a Responsible Federal Budget had calculated reduced spending of $1.2 trillion over 10 years under Trump’s plan.

Particularly worrisome is the prospect of turning Medicaid, the health care program for the poor, into a block grant, Tom Sheridan, a lobbyist for nonprofits, told The Chronicle.

Under this scenario, supported by Trump’s campaign, the federal government would stop providing states with a fixed percentage of their Medicaid costs and instead provide a lump-sum payment — a possible incentive for governors to remove people from the rolls.

The Affordable Care Act faces the biggest potential federal spending. Gutting Obamacare could have a ripple effect, nonprofit leaders told The Chronicle.

People whose insurance is dropped would find it difficult to afford necessities, such as diapers, according to Alison Weir, chief of policy and research for the National Diaper Bank Network.

“The fact that diapers are an issue shows that our safety net has more and more holes in it,” Weir said.

Steve Taylor, counsel for public policy at United Way Worldwide, said a scaled-back Obamacare was inevitable.

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