Many nonprofits and foundations in Minnesota are condemning the federal tax law, saying it will deal a devastating blow to the health of charities and the vulnerable populations they serve.
The sweeping, $1.5 trillion tax overhaul package passed by the Republican-led Congress and signed Friday by President Donald Trump, doubles the standard deduction. That’s expected to reduce the portion of taxpayers who itemize deductions — including charitable giving — from 35 to as low as 5 percent.
Without that tax incentive, nonprofit managers say they fear that people will no longer give as generously to good causes. Raising the amount where the estate tax kicks in, from $5 million to more than $11 million, also could significantly cut into charitable gifts.
Another blow could come during the federal budget process, with Republicans already signaling they want to cut funding for community programs often administered by nonprofits.
Trista Harris, president of the Minnesota Council on Foundations, said the tax measure will have “lasting, negative consequences” for nonprofits.
“Minnesotans are very charitable, but when 13 percent of all charitable giving happens in the last three days of the calendar year, it is clear [that] tax policy drives much of that giving,” Harris said.
Making it worse, she added, are cuts in government programs that people rely on such as health care. “These cuts will increase demand for the independent sector,” she said.
Darren Schaufenbuel of Owatonna said the tax changes could definitely influence his family’s giving.
Schaufenbuel, who works for a company that provides services and products for school fundraising, said that he and his wife usually go over their charitable giving and make final donations in December. Like many Minnesotans, they give with both heart and head, he said: to help others, and to help themselves at tax time.
But with the new tax law, Schaufenbuel said, “We may still give, but it will not be to the same level because you don’t get the added benefit of the tax write-off.”
Republicans in Minnesota’s congressional delegation framed the tax bill as a winner for businesses and middle-class families, who are likely to see their tax bills lowered, in some cases dramatically.
“We will give Minnesota employers the confidence and the capital they need to grow their businesses, to hire more workers and to give their employees a raise,” U.S. Rep. Erik Paulsen, R-Minn., said on the House floor. “This provides middle-income families with tax cuts they need to save for their future and improve their standard of living.”
But tax law changes are projected to reduce charitable giving nationally by an estimated $24 billion, according to the Council of Foundations.
The tax bill is “an irresponsible set of policies that prioritizes the benefits to wealthy corporations over the long-term investments in community,” said Rebecca Lucero, public policy director for the Minnesota Council of Nonprofits. “A lot of people donate because it’s the right thing to do, but we know the charitable deduction encourages and spurs additional donations.”
Nonprofit leaders said a drop in charitable giving could ripple through the entire Minnesota economy, where 12 percent of the workforce is employed by nonprofits.
While it’s a pretty grim prognosis, it could have been worse, Lucero said: The estate tax was not completely eliminated.
Nonprofit leaders across the country have denounced the tax measure.
Dan Cardinali, president and CEO of Washington, D.C.-based Independent Sector, a national organization for nonprofits and foundations, said the bill is possibly the most significant piece of tax legislation for the nonprofit sector in 100 years.
“Make no mistake, we believe this legislation undermines civil society and exacerbates inequality, placing our country on the wrong path — but the passage of a single bill does not signal the end of our fight or resolve,” Cardinali wrote on an online blog within hours of the plan’s passage.
Nonprofits, foundations and their trade groups have been forcefully opposing the measure for months, holding news conferences and issuing statements criticizing the tax plan. Lucero said charities are bracing for a grueling federal budget process that could leave them with fewer public dollars to do their work.
“Some members of Congress will be pushing for cuts to federal funding for programs that nonprofits and communities rely on,” Lucero said. “Medicaid and Food Assistance are two areas we know they will be looking to do cuts around.”
Sarah Caruso, president and CEO of Greater Twin Cities United Way, said that local United Ways across the country likely will lose millions per year, “meaning those experiencing poverty won’t have as much access to the services they desperately need,” she said. “We’re also very concerned about the financial health of the local nonprofit sector if major cuts are made to social services programs.”
But Caruso said they’re not going anywhere, relying on donors and diversified strategies to raise funds.
“We’ve weathered storms before, and we’re committed to our mission,” she said.
One glimmer of hope, Lucero said, is that Minnesota allows taxpayers to deduct charitable donations from their earnings on the state tax return if they don’t itemize. Approximately 204,000 Minnesotans took what is called the “non-itemizer” deduction in 2016, writing off $350 million in charitable contributions.
But since state income taxes generally make up a small portion of residents’ overall tax burden, the savings are likely to be modest.
State legislators have a duty to protect Minnesota and its communities from the harmful effects of the bill, Lucero said.
Schaufenbuel said he’s worried how a decline in giving could hurt nonprofit jobs and the charities he loves. His wife also works in the nonprofit sector.
“It’s a concern, top to bottom,” he said.