October 10, 2012
Charitable Deduction Under Fire
Many people are talking about comprehensive tax reform. There are lots of different flavors of tax reform, but the charitable deduction seems to be on the block in most of them. We all know about the Administration's proposal that would limit the charitable deduction. It was striking to me that some of the panelists at the recent Ways & Means Subcommittee hearings felt the need to speak out in a pre-emptive way about the negative effects of tax reform on the charitable deduction. I don't think this talk is going away any time soon.
Today's article in Bloomberg News outlines the possible impact of the new Romney tax proposal, which also would limit the charitable deduction. According to this article on CNN, here is the Romeney quote:
You could do something, for instance, as an option you could say everybody's going to get up to a $17,000 deduction, and you can use your charitable deduction, your home mortgage deduction, or others – a healthcare deduction, and you can fill that bucket, if you will, that $17,000 bucket that way. And higher income people might have a lower number," Romney said.
From that quote, all we know is that the charitable deduction is a potential target of an itemized deduction cap, as well as many other deductions of various sizes and costs. It would be easy to say that maybe this is just a Pease limitation under another name, but the capping of the healthcare exclusion for employer provided insurance would be mostly new (if that's what he meant). It really isn't clear what else would be in the "bucket." Certainly it seems like there might be enough other stuff in the bucket that you MUST pay (like your property taxes and your mortgage interest), that things that you COULD pay, such as charitables, would be crowded out IF.. and it's a big IF... you are a tax motivated donor.
If we take the Forbes report from the post I made yesterday to heart, it does appear that many high net worth donors are, at least in part, tax motivated. They may still give, but they may give less. My guess is these types of tax reform proposals will impact charitable giving, but it is really hard to know in a vaccuum how signficant those impacts will be.
Who knows if this tax reform stuff is all just talk and none of it will come to pass? It is easy for the cynic in me to see it all as so much posturing. But, It is a policy debate worth having - is the tax expenditure cost of the charitable deduction "worth" the private philanthropy that it theoretically encourages? Is the charitable deduction the same as other deductions, or is it different? In my personal opinion, which is worth next to nothing, the frustrating thing about both the Obama and the Romney proposals is that they are numerical caps. They sidestep the hard, subsantive discussions about whether all deductions were made equally by their Creator and therefore should be thrown together in a bucket - maybe, sadly, that's the price to be paid for tax reform, should it happen.
Sorry for the gloom and doom. I'll try to be more chipper tomorrow.
Yours Despairingly, EWW
October 9, 2012
Next Generation Philanthropy: The Forbes 400 Report
This post from The Chronicle of Philanthropy about restricted gifts led me to download the report linked in the article that was generated as a result of the Forbes 400 Summit on Philanthropy. Entitled "Next-Generation Philanthropy: Changing the World," the article (available free but email address required) contains the results of a survey of 264 of the world's top philanthropists, all of whom had at least $1.0 million in investable assets.
The Chronicle article focuses on the preference for restricted gifts among higher net worth taxpayers. But there are some other interesting nuggets that only a tax geek like me would focus on:
- 7% of individuals with assets between $1 and 5 million and 18% of individuals with assets over $50 million have utilized a pooled income fund. That seems amazingly high to me, and I'm shocked that it actually goes up with higher income donors, rather than down.
- Two-thirds of respondents said that they had a different philanthropic focus than their predecessors. It stresses the need for succession planning in charitable vehicles, an area that I think is sometimes over looked.
- In response to the question "With whom do philanthropists partner?", 40% responded business while 28% said other nonprofits and 22% said government agencies. And you all thought we were making this social enterprise stuff up.
- 44% of respondents want a time horizon of less than ten years to see a retturn on philanthropic investment. I'm thinking this counts as patient capital in the for profit world, but is it in the nonprofit world?
- Finally 56% of respondents say that taxes impact their philanthropic giving.
It's an interesting read for those of us thinking about how the nonprofit world and the system of private philanthropy will develop over the next generation.
October 8, 2012
PILOTs - Is the Revenue Worth the Hassle?
This Reuters piece from Sept. 28th highlights a recent report prepared by the Lincoln Institute of Land Policy, which finds that local PILOT programs do raise some revenue, but not a significant amount. The report (free but registration required) contains a significant amount of statistical information on the distribution of PILOT programs by region and by nonprofit sector, with hospitals and universities in the Northeast bearing the heaviest burden. The authors believe that this may be, at least in part, because the Northeast is “substantially more reliant on the property tax as a revenue source for funding local governments than other parts of the country.” (Page 2)
The report is an interesting read, although it notes its own limitations. There is no good collection point for data from PILOT programs, so the collection was, by necessity, somewhat ad hoc. As a result, the authors can only point to this information as a floor. Moreover, although the data shows an increase in PILOT programs and revenues over time, it is difficult to know whether this increase is due to the increase in the number of programs or simply due to better data collection methodologies. Finally, data collection is hampered by the lack of a consistent definition of a “PILOT” program.
In any event, what is striking is the relatively small amount of money raised if you aren’t in a jurisdiction like the Boston metro area, which has many large organizations making substantial payments. It makes one wonder whether the administrative costs and the poisoning of the relationship with large institutional citizens is worth the effort. Given the status of state and local governmental budgets these days, I’m sure they’d say that every penny is needed.