Tax Reform: Time to Panic or Plan?
Have you left behind summer’s BBQs feeling more like Chicken Little … or a brave F.D.R.?
In other words, is the sky falling? Or is there nothing to fear but fear itself?
There’s no doubt that the 2017 tax-reform law has struck terror into the heart of much of our sector. Now, as we look toward our all-important year-end giving campaigns, what’s a direct marketing fundraiser to do?
Our recommendation is simple: Don’t panic… but do plan.
There’s little doubt that the fundamental changes in our tax law – especially the doubling of the standard deduction to $24,000 – will have major impact on our sector. Some estimates have as many as 30,000,000 taxpayers – representing as much as $100 billion in charitable giving – no longer itemizing their tax returns. No one expects all of those donations to disappear. But with the threshold for counting charitable gifts as tax deductions out of reach, one (albeit just one!) major incentive for giving will be eliminated.
While most of our own clients have experienced very little, if any, negative impact so far, some major nonprofits have already reported dips in giving, and are attributing the decline to the effects of the new legislation.
The biggest test, of course, is yet to come. Most nonprofits use the hook of a tax deduction in the final days of the year – with tremendous success – and count on surges in donations at year-end to meet their budget goals.
We don’t have a crystal ball. We can’t say for sure how much tax reform will –or won’t – hurt at year-end. What we can do is recommend a few actions to consider as you put your year-end campaign in motion:
Create an (extra!) sense of urgency. If your expectation is that a large proportion of your donor file will move toward non-itemized returns – and the prospect of a tax deduction is no longer an incentive — create new ways to move into a fundraising crescendo at year-end. For example, consider promoting a challenge grant or matching gift – with a 12/31 deadline – to create momentum going into the final days and hours of the year.
Pay special attention to your mid-level donors. Most experts suggest that donations in the $1,000 to $5,000 range are most at risk. (Our own data suggests that this threshold might be as low as $250.) Depending on a variety of factors – such as where your donors live and their total level of charitable giving – they may no longer see the need to itemize. They’ll also be highly cognizant that there may not be a tax benefit to their donations. Consider special outreach and thank you’s to this group. Take extra time explain why their support matters more than ever. In some cases, consider some careful messaging about how the tax law might – or might not – affect them. There is still enormous confusion, and many donors may hold a false view about the impact in their particular circumstances.
Consider geography. It gets complicated, but geography may well be destiny for some of your donors. States with high numbers of donors such as New York, California and New Jersey – with high local taxes and home values – are expected to see little change in the proportion of their residents who itemize, and thus less impact on charitable giving as a result of the new tax law. On the other hand, important philanthropic locations such as Florida, Texas, and Washington – where very low local taxes make it a different story – could see major shifts. If your donor file is large enough, think about whether segmenting your messaging is doable. While this may be too expensive to consider for your entire program, it may be that this is where your mid-level audience is worth the special treatment.
Look for ways to leverage the benefits of tax reform. It’s not all bad news for our sector. In general, most of our donors will see at least slightly more disposable income – and thus have more available to give. Under the new law, gifts of stock, contributions from IRAs, and certain planned gifts will have as much – or more – benefit from a tax-planning point of view for our donors. Figure out what makes sense for your particular donor audience, and then promote that message with direct mail inserts and digital content.
When all is said and done, we can’t imagine the sky will hit the ground. On the other hand, at least some impact seems almost certain.
So take active steps now to lessen any negative effects on your own program. And in the midst of any new messaging, segmentation, and special treatment, don’t lose sight of the fundamental truth you’ve always known.
The most powerful story, with the most urgent case for giving, is what always wins hearts and opens the most pocketbooks.