Often, the relationship between the federal government and nonprofits can be rather like an elephant and an ant dancing:
But there are three things on the horizon at the federal level that could have significant positive impacts for nonprofits.
Real charitable deductibility. For those joining the program already in progress, the 2017 tax law changed the nature of the standard tax deduction so that it was better for all but the wealthiest Americans to take the standard deduction. That means few itemize their taxes. And because the tax deduction for charities is an itemized deduction, few get any actual tax benefit from donating to nonprofits.
In short, if you say “your gift is tax-deductible to the full extent of the law,” that extent is not very full.
As any economist would predict, when an incentive for something goes away, fewer people do it. Most donors don’t donate to get the deduction but it does make donating cheaper. When the deduction leaves, they must go through more financial pain to donate the same amount.
So right-thinking individuals (full disclosure: including us here at Moore) have been pushing for above-the-line deductibility, meaning you can deduct your donations before you do anything else on your taxes.
There’s a variant of this (that would limit the deduction to one-third of the standard deduction: about $4K for individuals and $8K for couples) in a bill being pushed by Senators Lankford (R-OK) and Shaheen (D-NH) and supported by several other senators. There’s also a push in the House to have an uncapped above the line deduction championed by Reps. Christopher Smith (R-NJ) and Henry Cuellar (D-TX).
And there’s some momentum behind this according to the Wall Street Journal, in part because it’s something in Washington that’s supported by both people with D and with R after their names. An Indiana University analysis of this says it would increase the number of donors by 8% — seven million new donors.
If you could use your part of seven million new donors, we’d suggest strongly urging your federal representatives to push for real tax-deductibility while the ball is rolling downhill for once.
Loans to nonprofits. A Charities Aid Foundation found that 80% of charities are tapping their reserves during COVID-19. Thus, there may be a need for a bridge to get nonprofits through.
Enter the Federal Reserve. They are seeking input on a proposal to extend their Main Street Lending Program to nonprofits with 50 employees minimum. Loans could range from $250,000 to $300,000,000, principle payments would be deferred for two years, and interest payments for one year.
Here’s the hitch: their current proposal says nonprofits need to get 30% or less of their revenue from donations to qualify. Our theory is that the Fed wants to do that because those organizations will be presumably more stable and able to pay back the loans.
There are a couple problems with this:
So if you are interested in such a loan, we’d recommend writing in favor of the program but without the 30% restriction.
Trust. OK, this isn’t technically something the federal government did.
But trust in nonprofits has skyrocketed compared to the federal government.
The Chronicle of Philanthropy surveyed people in March and May and nonprofit trust has jumped. The rise in trust was most pronounced in people 45 to 54. Seventy-six percent of people in that age group said they had a fair amount or a great deal of confidence in nonprofits responding to the coronavirus, up from 60 percent a month before. Likewise, 74 percent of those 34 or younger had similar levels of confidence in nonprofits, up from 64 percent a month before.
This trust will be essential to retooling and rebuilding post-pandemic so it’s good to see these numbers now.