The Impact of Tax Reform on Philanthropy
After an unpredictable election season, tax reform seems almost certain and that is prompting action on a certain kind of fund to help people give charitably.
Tax reform is extremely likely, said Anne M. Morgan, director of gift planning for St. Mary’s College. She spoke to about 50 members of the Elkhart County Estate Planning Council, a group administered by the Community Foundation of Elkhart County, on Nov. 30 about changes she expects in philanthropy because of political change.
Republicans have been wanting tax reform since 2010 and now have the president-elect and Congressional votes to get it done, she said. Republicans in the House of Representatives have put forth one plan. President-elect Donald Trump released his plan. Based on where the two intersect, Morgan has some predictions.
“The important thing is both want to simplify the tax process,” she said. The federal tax code is 2,700 pages long and the tax preparation industry takes in $10 billion a year, she said. Speaker of the House Paul Ryan and others are considering how to simplify the code, lower taxes and increase tax revenue. The goal is to increase investments and jobs, she said.
The proposed plans from both the new administration and Congressional Republicans agree on eliminating the estate tax, reducing the number of tax brackets to three and cutting taxes. Although both plans retain the charitable deduction for income tax, there is not consensus within Congress on whether to eliminate or cap the charitable deduction allowed. “The elimination of the charitable deduction would greatly impact the non-profit sector,” said Morgan.
In the short-term, the prospect of tax reform could decrease charitable giving to non-profits. Mid-level gifts of around $100,000 would be less common in the near future, she said. That is where the donor advised fund comes in. “We are seeing a spike in donor advised funds,” said Jodi Spataro, Chief Advancement Officer for the Community Foundation of Elkhart County. “More and more families are turning that direction.”
An individual or family can create a donor-advised fund with the Community Foundation. A donor-advised fund allows a donor to make a charitable contribution, receive an immediate tax benefit, and make recommendations for grants from the fund over time. “It is a charitable tool that a donor and their family can use for charitable giving for years to come,” Spataro said.
Spataro, Morgan and other financial advisors have been answering a lot of questions related to the political changes. They are doing research and offering their best counsel. “People just need to be informed by the professionals rather than by fear and questionable sources,” Spataro said.
Morgan is pretty sure tax reform is imminent. Trump has said it will be part of the agenda for his first 100 days. How it will look is far less certain. “There is so much we don’t know,” Morgan said.
She is hoping for whatever tax reform change happens, that there is an effort to get bilateral support. “Half the reason people hated the Affordable Care Act was they felt like it got shoved down their throats. The last time a significant overhaul was done to the tax code was in the 1980s and most found it acceptable as it had support from both major parties,” she said.
They are urging people to pay attention to what may be proposed as tax reform in the coming weeks. “I hope for something that is balanced and fair that stimulates the economy,” Morgan said.
Whatever reform passes in early 2017 could be federal law for some time, Morgan said. Republicans could gain even more power in the 2018 election if they were to win a super majority in Congress. “I have a suspicion whatever happens in the next 100 days is something we are going to be living with for quite a while,” she said.
The economic impact of any changes is not known and particularly in this time of uncertainty, the Community Foundation of Elkhart County is committed not only to making grants to agencies and causes in the community, but helping individuals and families navigate how to do more of that themselves, Spataro said. Its quarterly educational opportunities for the members of the Elkhart County Estate Planning Council are hosted by the Community Foundation and help dozens of people in the community share information and work at making our community stronger.
The Community Foundation already manages over 80 donor advised funds totaling $16 million and awarded $3.4 million in grants in the 2015-16 fiscal year. “As those numbers grow, we will keep inspiring generosity,” Spataro said.