Companies Say Tax Cut Will Boost Their Giving, but Some Experts Are Skeptical

Feeling flush after a 40 percent corporate tax cut passed late last year, Best Buy set aside an additional $20 million for its corporate philanthropy. Boeing readied a $100 million boost for charitable causes, and U.S. Bancorp also credited the lower corporate tax when it made a one-time $150 million donation to its foundation.

With the windfall following passage of the tax cuts, many companies found they had a lot more to give. But, charity experts warn, the rush of corporate gifts probably won’t last, and some say the acts of generosity are actually just well-timed public-relations efforts. Others argue the new tax law may give companies less of a reason to make charitable donations.

Altria cited the tax reduction when it announced a $35 million bump in giving that it will spread over three years. In recent years, the maker of Marlboro cigarettes and Skoal chewing tobacco has contributed $55 million annually to charitable causes, with a focus on youth development, environmental sustainability, and the arts, mostly in its home turf around Richmond and in areas where it has manufacturing plants, including Nashville and Hopkinsville, Ky.

The additional grants will also support training for the people needed to replace workers on the verge of retirement at Altria factories.

“We saw an opportunity, after corporate tax reform was passed, to invest in our future, in our business, in our people and also our community,” says Brian May, an Altria spokesman.

One-Time Bonanza

Corporate-philanthropy experts say nonprofits shouldn’t expect the new money to keep flowing.

Any increase in corporate gifts is likely to be a one-time bonanza for nonprofits, predicted Patrick Rooney, executive associate dean for academic programs at the Lilly Family School of Philanthropy at Indiana University. By lowering the corporate rate from 35 percent to 21 percent, Congress reduced the incentive for companies to give over the long haul. As with individual taxes, lower corporate taxes reduce the after-tax value of charitable giving.

Rooney doesn’t expect giving from businesses to reflect the entire decline in the corporate tax rate and drop by 40 percent. He says more vigorous study is needed, but using the same assumptions Lilly School researchers used in a study of the potential impact of the tax changes on individual giving, he says corporate giving could decline by $1.4 billion, a 7.6 percent drop from the $18.6 billion companies gave in cash and donated goods two years ago.

Recent announcements from companies, he says, likely resulted from “social pressure” to give back immediately following a hefty tax break.

The lower tax burden is permanent, and shareholders will press companies to notch higher profits each year. Those demands, Rooney says, will make it hard to sustain this year’s giving spree.

“In the future, those tax rates will be built into profit expectations,” he says. “Right now they’re not.”

Daryl Brewster, chief executive of CECP, a coalition of corporate leaders who push for companies to spend money on social causes, agreed.

The tax cuts are permanent, “but the big change happens just once,” he says, adding: “This will be a huge one-time win.”

Clearer Picture

Over the next few months, CECP will get a better picture of corporate giving plans as it reviews responses to its annual survey. Brewster says an informal survey of more than two dozen public-company participants in its February “Board of Boards” meeting for chief executives found that 12 percent of companies plan to dedicate most of the savings from the lower tax to “social investments,” which could include higher wages, foundation grants, or investments in communities where they do business. More than half hadn’t decided how to use the extra money.

Over the next few months, those plans should come into focus. Humana, for instance, is in the process of deciding how to allocate the $550 million it expects to save on its tax bill each year, company spokesman Jim Turner said in an email. About half of that will go to higher pay or benefits for employees, investing in communities, or rewarding shareholders, he says. The company will also double its annual match, from $100 to $200, for most employees’ charitable gifts.

Alex Bakkum, senior philanthropic adviser at U.S. Bank Private Wealth Management Charitable Services, a division of U.S. Bancorp, also sees a short-term rise in corporate gifts. He informally polled about 60 of his clients and discovered about $1.3 billion in new corporate gifts that were either announced shortly after Congress passed the new tax code or were directly attributed to the lower rate.

He’s not sure whether the giving will be sustained; charities should act fast to take advantage of corporate largess, he says.

“Their motivations are going to be varied,” he says. “But a lot of corporations seem excited about the opportunity to do something more for their communities. In the short term, there is a remarkable opportunity for organizations to meet or exceed their fundraising targets.”

Dividends and Stock Buybacks

A newly vigorous sense of corporate generosity is just one part of the picture. At the same time companies are giving away millions, they are also paying bigger dividends to shareholders, buying back stock to boost the share price, and adding cash reserves.

The $150 million gift U.S. Bancorp made to its foundation, for instance, is just a fraction of the $910 million in reduced taxes related to the new law, according to a company statement. And the extra $35 million Altria earmarked for charity came during a fourth-quarter earnings call when it said it had paid out $4.8 billion in dividends in 2017 and would buy back $1 billion worth of company shares this year.

Boeing, which did not return calls, earmarked more than $160 million for its philanthropy in 2017, according to a company statement. As it announced its additional $100 million gift, it was embarking on an $18 billion share-repurchase program.

Best Buy, which declined to comment, appeared to use the new tax plan as an opportunity to more aggressively buy back shares. In March, it said it would dedicate an additional $500 million to a previously announced $3 billion repurchase plan.

The lower corporate rate factors very little into giving decisions, according to Linda Sugin, associate dean at the Fordham University School of Law. The recent spate of corporate gifts, she said, is more of a public-relations “gambit” than a response to the lower tax rate.

“Corporations make contributions to charity because they think it’s going to be good for the bottom line. The marginal rate of tax isn’t really going to change that,” she says. “Corporations are not generous.”