A drop in donations

MARY REICHARD, HOST: It’s Tuesday, the 5th day of March,  2019. Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher. First up, charitable giving.

The tax code does have an effect on the money Americans give to charity, and back in December 2017, Congress made massive changes to the code.

One of those changes involved a near doubling of the standard deduction. That’s the amount of tax-free income Americans can automatically claim each year.

That’s good news for most taxpayers, but potentially bad news for charities. Taxpayers who take that standard deduction don’t get any tax benefits for their charitable gifts.

REICHARD: Analysts warned the new measures might discourage charitable giving. The American Enterprise Institute predicted a 4 percent drop in donations. Did those dire predictions come true? A recent study analyzed Americans’ charitable giving for last year and came to some surprise conclusions. WORLD Radio correspondent Anna Johansen is here now to talk about it.

Good morning, Anna!

ANNA JOHANSEN, REPORTER: Good morning, Mary.

REICHARD: The Fundraising Effectiveness Project released this study about a week ago. Tell us what they found.

JOHANSEN: Sure. The study looked at U.S. giving trends for 2018. It concluded that charitable giving rose 1.6 percent.

REICHARD: Hang on, let’s get this straight. Everyone was worried that the changes would discourage charitable giving. But it actually increased?

JOHANSEN: Yeah, when I first saw that number I thought, wait, isn’t that a good thing? But just like any study, the context is what’s important. This 1.6 percent increase in giving was kind of a disappointment for people who track these things, because the economy has been doing really well.

And when the economy is doing well, experts say charitable giving ought to increase by 3 to 5 percent each year. That’s exactly what we saw in 2016 and 2017. But this study shows 2018 didn’t come anywhere close to that.

REICHARD: And why is that?

JOHANSEN: Well, with the new tax code, if you itemize your deductions, you can still get a tax break on your charitable donations. But the standard deduction is now about $12,000 for an individual. For most people, it’s going to be better than itemizing. And then they might say, Well, I’ll take the standard deduction and I won’t get a bonus for money I give away, so I just won’t give to charities.

And that’s reflected in the study. It shows that the number of people making donations dropped 4.5 percent, and there were a lot fewer first-time donors.

REICHARD: If the number of donors went down, how does that jive with the number we talked about a minute ago, that 1.6 percent increase in overall giving?

JOHANSEN: Right. The difference is in the amount of money each individual gave. We saw a decrease in donations under $1,000. But we saw an increase in larger gifts. So instead of a lot of people giving small gifts, we saw a few people giving bigger gifts.

REICHARD: What’s behind that trend?

JOHANSEN: That suggests some donors gave more in order to exceed the standard deduction threshold. This was interesting: A lot of the people who gave more than $1,000 in 2018 had never done that before. They’d always given less than $1,000. That indicates they thought, ‘Hey, I should increase my gift, I’ll itemize, and then I’ll grab that tax benefit.’

REICHARD: Are there other explanations for why the number of small charitable gifts might have gone down?

JOHANSEN: It’s possible that some people just aren’t sure what to do with the new changes, so they’re hanging back until they figure things out. As they do their taxes this year, they’ll start seeing, ‘Oh, this is what I can and can’t do.’ And they might change their giving strategy based on that.

On top of that, this study by the Fundraising Effectiveness Project covers mostly small nonprofits. There are other studies slated to come out later this year with more info about the bigger picture.

REICHARD: Anna Johansen is a WORLD Radio correspondent based in Chicago. Thanks for joining us today!

JOHANSEN: You’re welcome!

(Photo/©iStockPhoto.com, rvlsoft)

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