Uncertain Tax Rates Could Hurt Giving

November 17, 2010; Source: Post-Crescent | It is the same message that corporations have been giving President Obama and Congress about investment and hiring—don’t delay. Critics say government’s delays in coming to grips with the decision to extend or not extend some or all of the “Bush tax cuts” may harm charitable giving also.

In her syndicated column, USA Today writer Sandra Block suggests that “donors are rethinking year-end contributions” due to the political deadlock around taxes, creating charitable uncertainty. The specifics include Congress’s failure to extend, so far, the charitable rollovers from IRAs, uncertainty about whether Congress will reinstate the estate tax after its expiration last year, and the prospects of higher tax rates due to the pending expiration of the Bush tax cuts.

Independent Sector’s Diana Aviv suggests that wealthy donors won’t make large contributions to charities while these tax issues are unresolved. The point is that these tax considerations do not strongly affect the charitable giving of ordinary middle class Americans, but they do affect the timing and amounts of giving from high net worth givers. As various studies of the IRA rollover have shown, the primary beneficiaries of charitable contributions from retirement accounts have been colleges and universities, not human service providers or social change advocates.

It appears just about certain that President Obama will accede to extending many of the Bush tax cuts, at least temporarily; perhaps even the tax cuts for millionaires. The president and his Congressional allies might have gotten the estate tax reinstated had he not waited for the elections to move.

One wonders whether corporations sitting on large piles of recession-earned cash will put that money to work by hiring back employees regardless of whether the tax cuts are extended or rescinded. Given the still volatile stock market and continuing weak real estate market, one might wonder whether the super-wealthy will up their charitable giving when Congress and the White House reach an agreement around tax rates.

What is not uncertain is that high net worth givers will continue giving, tax deal or none, to the institutional charities whose services they and their families typically consume, such as higher ed, and not as much as they could to the grassroots charities that work on the front lines of social change in urban and rural communities addressing poverty and hardship.—Rick Cohen

  • Karen Garber

    As we have seen from the recent crash that was caused by personal greed among the wealthest finance corporations and individuals, concern about the welfare of the middle or lower income public isn’t really important to them. I don’t think there is any reason to suppose that these entities/individuals would increase their charitable giving if the Bush tax cuts were sustained. Their actions prove the point that public welfare isn’t their concern. My experience has been that the largest share of giving comes from those least able to afford it.

  • rick cohen

    Dear Karen: I think that’s the point of my last paragraph. But to your statement about the “largest share of giving comes from those least able to afford it,” I refer you to two important studies that have been largely ignored. When the Clinton Administration left office, the Council of Economic Advisers published a study on charity and philanthropy that stayed on the White House website for 15 milliseconds. The fascinating finding in there was its analysis of Americans with positive net work by quintiles. The lowest quintile gave something like 5-8 percent of its income (I don’t remember the exact number) and 13 percent of its wealth (assets) to charity annually. The other four quintiles were less than 2 or 1 percent in both giving as percent of income or assets. Then the question is, who benefits? In the UK, there was a stud some years ago called The Widow’s Mite (based on the biblical parable), that showed that most of the giving to causes serving disadvantaged populations came not from wealthy givers, but from working class and lower income givers. Thanks for your comment–and giving me the room to add those citations!