Tax Law May Hit Human Services Especially Hard, Research Suggests

The TEST

The tax law that passed last year is widely expected among charity advocates to put a crimp on giving. Some nonprofits, according to a recent study, have more reason to fear than others. The biggest potential losers: health-care and human- service providers.

For years there has been a consensus about the power of the charitable tax deduction as a giving incentive. How big an incentive is up for debate. Some studies that look at donor information culled from individual tax forms have shown that changes in tax rates have a one-to-one effect on charitable giving: For every 1 percent that marginal tax rates changed, charitable giving was seen to increase or decline a corresponding 1 percent.

However, when Nicolas Duquette, an economist at the University of Southern California, looked at private contributions on nonprofits’ tax filings, he discovered something different: small tax changes can have a magnified impact on some gift recipients.

Results

Duquette’s analysis found that a 1 percent change in tax rates resulted in a 4 percent loss in charitable gifts across all charities in the study. Health-care nonprofits suffered as much as a 6 percent drop, and human-service organizations, like homeless shelters, saw gifts decline by up to almost 5 percent. Duquette stressed that the study sample was not representative of the broad universe of nonprofits, but he speculated that gifts to arts and community foundations might not be as hard hit.

Dig Deeper

Duquette’s research suggests that the effects of the tax overhaul signed by President Trump in December, which lowered tax rates and reduced the incentive of the charitable deduction for most taxpayers, won’t be spread out evenly. He predicted that over the next several years when “Giving USA” releases its annual estimates of charitable giving, “there will be some wiggle but not a dramatic change in charitable giving.” However, some organizations, he said, will be profoundly hurt. — Alex Daniels

FIND IT

“Do Tax Incentives Affect Charitable Contributions? Evidence From Public Charities’ Reported Revenues,” by Nicolas Duquette, Journal of Public Economics, Vol. 137.