Focus, Government, and Nonprofits

Policy changes play significant role in philanthropy decisions

Foundations keep a close eye on federal and state charitable giving laws.

October 23, 2015
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In an effort to encourage individuals and businesses to build community foundations’ permanent endowments, Michigan became one of the first states to sign a tax credit policy into law, on Dec. 29, 1988.

That all changed during Gov. Rick Snyder’s administration.

The Michigan Community Foundation Tax Credit allowed residents and companies to receive a 50 percent tax credit for a donation to an endowment worth up to $200 for a couple, $100 for an individual and up to $5,000 or 10 percent of Michigan business tax liability, according to a 2013 report from the Johnson Center at Grand Valley State University.

Diana Sieger, president of Grand Rapids Community Foundation, said the state legislature in both houses passed the tax credit specifically intended for community foundations, which incentivized charitable giving.

“It was not at all a drain on the state revenue piece, but what it did … was provide those donors who were interested in donating to a community foundation a really good incentive,” said Sieger. “For 20-plus years we were able to offer our donors tax credit. We had to prove that it went to a permanent endowment, and when Gov. Snyder rescinded all the tax credits across the board, they rescinded that, and we have seen a decrease in what I would say is the entry-level donor to community foundations.”

The Johnson Center’s 2013 report, The Impact on Giving After the Repeal of the Michigan Community Foundation Tax Credit, indicated both the tax credit for community foundations and two other charitable tax credits were eliminated in 2011. The quantity and number of “$200 donations, $400 donations and all amounts under $400 were significantly less in 2012 than they were in 2011,” according to the report.

“It hasn’t had a dramatic impact because primarily the manner in which we raise our money is through planned giving, estate gifts and that kind of thing,” said Sieger. “It was a policy, a piece, that had an impact on our ability to bring new donors into the Community Foundation.”

While the state-level policy repeal hasn’t posed a significant impact on the foundation, Sieger said there have been several attempts at the federal level in recent years to review the “100-year-old charitable deduction offer on taxes.”

“When you file your income with the federal government — the IRS — you can put in an amount of money that you have contributed to 501(c)(3)s and for any gift over $250,” said Sieger. “That is going to probably continue to be a challenge, and I think we are talking about both from a state as well as the federal (perspective), the necessity for preserving revenue, and I think that is the impetus at the federal level.”

Mike Goorhouse, president and CEO at the Community Foundation of the Holland/Zeeland Area, said some of the conversations at the federal level on proposals to change the tax code include changing the charitable deduction, lowering it, or only allowing individuals to deduct a certain amount.

“People say (that) people give for the sake of the goodness of their heart — they don’t give because of the financial side, and I would agree with that. It is not the reason people give, but it does impact how much they can give,” said Goorhouse. “If you aren’t getting a deduction for it, then those dollars have to be reallocated to taxes and can’t go to charitable giving. That is a key one to keep an eye on. It is something that could drastically impact the amount individuals can give to charity.”

The U.S. House Ways and Means Committee introduced the Tax Reform Act of 2014, which had provisions impacting “nearly every type of tax-exempt organization,” according to the Council on Foundations’ summary of the act. One of the provisions impacting community foundations involved assessing a 20 percent excise tax on public charities failing to make eligible distributions from donor-advised funds within five years.

“I do recognize the tax system needs really good revision, but there is a piece in there, though, that may have an impact if ever it sees the light of day. It demonstrates there is confusion and misunderstanding at the national level and probably across the board about endowed philanthropy,” said Sieger.

There are also policies and laws in place encouraging alternative forms of giving, such as the IRA Charitable Rollover, Goorhouse said.

“It allows senior citizens who are 70 years old and above who have IRAs to have their required minimum distribution given to charity directly, versus incurring it as income,” said Goorhouse. “That has been a real positive. The feds have passed it three different times. They do it in two-year chunks and don’t make it permanent so every couple of years they have to re-pass it. It has encouraged people to give back.”

Goorhouse said another layer to the issue is how legislative policies or decisions impact the areas in which community foundations and individual donors are trying to make a difference, including minimum wage requirements, federal housing subsidies, and funding to statewide mental health programs.

“We see the mental health issues on the rise, and yet the state is cutting funding to those areas,” said Goorhouse. “It is a policy or decision that I’m not saying impacted giving habits, but it certainly impacted drastically the issue area that many people are trying to address and improve on.”

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