New tax law could crush nonprofits ... or maybe not
Thanks to the new tax law, a throng of nonprofits will go out of business, museums and symphonies will thrive while boots-on-the-ground charities stumble, and more children will go astray.
Or maybe not.
It’s a safe bet that the bill signed into law Dec. 22 will help push some 501(c)(3) organizations over the cliff. It’s an outright certainty, said the featured expert at a seminar Tuesday, that “there will be surprises.”
And Ruth Madrigal, speaking at the invitation of the Community Foundation for Southeast Michigan, was equally confident that “we’re going to find out pretty quick” where any flaws in the tax act are lurking.
But exactly what will happen is tough to predict, which is part of the problem for nonprofits and the people who love them, fund them, draw up budgets for them or depend on them.
Some 280 nonprofit executives filled a Detroit Athletic Center ballroom for Madrigal’s morning session, and enough others wanted in that the event was livestreamed on YouTube. An afternoon session was open to attorneys, accountants, financial advisers and trust officers who wanted to hear from Madrigal, formerly of the Office of Tax Policy at the U.S. Treasury Department and now a partner in the Washington, D.C.-based law firm Steptoe & Johnson.
For those in the morning group, the most worrisome piece of the legislation was the part that might keep previous donors from writing checks in 2018.
The standard deduction has doubled for 1040 filers, to $12,000 for individuals and $24,000 for married couples. The number of people itemizing their deductions is expected to fall from 30 percent to a miniscule 5 percent.
That leads to the $12 billion-to-$20 billion question, with that figure being the drop-off predicted by the nonpartisan Tax Policy Center: If people don’t need to itemize, will they still make the charitable contributions that used to help lower their tax bills?
“I was just talking with our CEO about the impact it may or may not have,” said session attendee Liz Arndt, chief financial officer of CARE of Southeastern Michigan.
CARE helps individuals and families deal with substance abuse, and with a crucial mission and a $4.7 million budget, it’s not in danger of vanishing. But it’s concerned about breaking even: “We’re talking more about what we can do to keep folks engaged with our organization, and not lose what we have.”
George Moroz, special assistant to the president of the Henry Ford in Dearborn, brought up the possibility of big-ticket charities thriving while humbler ones struggle — what he called “the gentrification of philanthropy.”
The upper-income donors expected to benefit most from the tax plan tend to give to the arts, he said, while lower-income donors give proportionately more to social service agencies.
“Should we still be trying to get $100 and $200 gifts?” he asked. His answer was yes, because every dollar counts and so does every friend. “But I’m hoping people give some thought to it.”
Among Madrigal’s concerns is what strikes her as a partisan and punitive 1.4 percent excise tax on the investment income of certain well-off private colleges and universities. With that door wedged open, she said, public universities could be in the Congressional crosshairs — “and first they came for the colleges and universities, right?”
“Community foundations and big foundations have big pots of money just sitting there,” she pointed out. “They may be next.”
More immediately, and unrelated to the seminar, Ryan Hagan has been dealing with a youth program whose future seems far less certain than its value.
Hagan is a partner with Altruic Advisors, an Ann Arbor-based CPA firm working solely with nonprofits. The youth program is already struggling, Hagan said, and if its donations drop as much as the Tax Policy Center predicts, “that will pretty much be the end of them.”
He said nonprofits may need to start working more closely with their most devoted donors, organizing a schedule: bundle donations every other year, for instance, so itemizing trades off with taking the standard deduction as the most profitable way to file.
It’s complicated, but so is life. “We will adjust,” said president Mariam Noland of the Community Foundation, because one truth remains simple:
Need isn’t going away.