Americans Say They Will Pull Back on Giving in 2013: Can That Change…and What Can You Do?
While charities are sailing into a headwind in 2013, it’s far from a fait accompli that they’ll see lower giving levels. Fundraisers need to understand what the giving public is thinking, how they can best connect with them and how to counter the potential negative fundraising trend.
At the beginning of this year, Dunham+Company conducted its sixth annual State of Philanthropy Study. The purpose of the study was to try to gain a sense of whether donors across America would increase their giving, decrease their giving or continue giving at their current levels.
Since 2008, the Dunham+Company State of Philanthropy Study has accurately predicted the direction of giving for the coming year and based on this year's study, it's clear that charities will be sailing into a headwind in 2013.
Comparing the Past, Present & Future of Giving
As you can see from the chart below, during the recessionary years about one out of four Americans said they would be pulling back on giving, with only eight percent and 14 percent in 2008 and 2009, respectively, saying they would increase giving. Although the data remained unchanged for 2010 compared to 2009, Dunham+Company anticipated there would be an upturn in giving by households making $75,000 or more. This increase was based on the fact that there was more than a 30 percent jump in the number of these households saying they would increase giving in 2010 compared to 2009. As predicted, giving did begin to rebound in 2010.
In 2011, donors had a much more positive attitude related to giving. There was nearly a 50 percent drop (13 basis points) of those who said they would reduce their giving as well as a jump of 29 percent of those who said they would increase their giving. Giving in 2011 increased by four percent, up to nearly $300 billion, according to Giving USA.
The Blackbaud 2012 Charitable Giving Report indicates giving increased 1.7 percent last year. There will be a more complete picture of 2012 giving when Giving USA (the longest running annual report on the sources and uses of giving in America) is released later this year.
Looking Forward to 2013
As we move into 2013, the data is indicating that the attitude of Americans towards charitable giving is once again softening as they say they will pull back on their support for charities in the coming year. As you can see in the chart, donors anticipate that their giving in 2013 will revert to recession-like levels, with 27 percent of adults—the same percentage as 2009 and 2010 and more than double the percentage in 2012—saying they will give less in the coming year.
So what’s driving this? Over the years, our research has shown that charitable giving is at risk when there is uncertainty in the economy as people conserve out of fear for what the future might hold. With the uncertainty over the implications of what might be done during the debt ceiling negotiations regarding tax rates and deductions, there is plenty for Americans to worry about.
The natural question is, “Is there anything that might change this scenario?” Could we see a better outcome? Perhaps the most significant positive factor would be greater economic stability, which doesn’t seem likely in 2013. However, preserving the charitable tax deduction as an outcome of the upcoming debt-ceiling debate could have a very positive impact, especially if it is carved-out if other deductions get capped or limited.
The New Charitable Deduction
As you probably know, since President Obama’s first budget in 2009, his administration has continually proposed raising the tax rate to 39.6 percent on individuals making $200,000 or more ($250,000 for families) and capping the charitable deduction at 28 percent.
Capping, limiting and even eliminating the charitable tax deduction was put on the table during the debate over how to avert the fiscal cliff at the end of 2012. What was passed, House Resolution 8, ended up raising the tax rate to 39.6 percent on single households of $400,000 or more ($450,000 for families) and allowed the Pease limitation to be reinstated, which decreases deductions for those who make more than $250,000 ($300,000 for families).
The Pease limitation requires families to calculate the difference between their adjusted gross income and $300,000, multiply that by three percent and then reduce their deductions by that amount. So for every $100,000 of income above $300,000, they will have to reduce their deductions by $3,000, capped at 80 percent of all deductions.
What this has done is to begin to limit what high net-worth individuals can give. Although no one knows the real impact of this measure, it does negatively impact those who provide about 50 percent of all donations, which is more than $100 billion to charities. So it is imperative to ensure that any legislation going forward protects the charitable tax deduction as it stands today.
Preserving the charitable tax deduction not only helps spur charitable giving, it also reflects the wishes of the American people. Based on a study Dunham+Company conducted last year, this is a deduction that three out of four Americans favor. This support cuts across age, income, ethnicity, gender and geographical location.
Turning a Negative Into a Positive
So what can you do to counter the potential negative fundraising trend? There are three things recommended that you emphasize in the coming year with your donors:
- Encourage gifts of appreciated assets. Under HR 8, the capital gains tax rate was increased from 15 percent to 20 percent (a 33 percent increase) on households making $450,000 or more ($400,000 for singles). Gifts of appreciated stocks, property or other appreciated assets can bypass that 20 percent tax, pass the full value of that asset to charity and the donor can get a tax deduction for the full amount of the appreciated asset.
- Encourage estate gifts. HR 8 codified the estate tax exemption at $5 million for individuals, $10 million for couples. But the estate tax was also increased from 35 percent to 40 percent. If you have donors with estates in excess of the above amounts, giving gifts now to reduce the value of the estate or creating a charitable trust is a good move for them and for you.
- Encourage gifts out of IRAs from donors 70 ½ or older. HR 8 extended for two years the opportunity to make a tax-free gift out of a personal IRA account for individuals 70 ½ years old or older. This is a great way for donors to bypass tax on a distribution out of their IRA and support their charity of choice. So instead of giving a gift out of cash, encourage them to give it directly out of their IRA and preserve their cash or other assets for living purposes.
In addition to these things, keep your donors engaged with the impact your charity is making through frequent multi-channel communication, showing how their support is making a difference and why their ongoing gifts are vital to seeing lives transformed. Don’t take the potential softening of charitable support as a fait accompli, but rather see it as a call to donor engagement, keeping your valued supporters inspired to continue giving to your cause.
Rick Dunham is a 35-year veteran in fundraising and is President and CEO of Dunham+Company which provides fundraising consultation to more than 50 organizations in the United States, Canada, United Kingdom, South Africa, Australia and New Zealand. Rick also serves on the board of The Giving Institute, which is the publisher of Giving USA, the most widely respected annual report on giving in the U.S., and is also a member of the Charitable Giving Coalition, the national voice for charitable organizations in the U.S. Rick has been married 39 years and has three children and eight grandchildren.
Related AFP ResourcesReal Estate Gifts In Canada, What is the Lay Of The Land And How Is AFP Involved?
AFP/Globe and Mail: Incentives for Taking Canadian Giving to the Next Level
Imagine Canada Releases Paper on Charities as an Economic Sector
Canada: Federal Budget Includes Key Giving, Charity Provisions Pushed by Charities, Fundraisers
AFP Statement on President Obama’s FY 2016 Budget