State of New York chops in half amount wealthy donors can write off—implications for other states unknown

Katy Snyder, JVA Consulting

In what some charities have called an ill-advised move, New York legislators have passed a law that halves the amount of money that wealthy donors can write off on their tax returns, says a recent Chronicle of Philanthropy article. The wealthiest New Yorkers (those earning over $10 million) used to be able to deduct 50 percent of their donations, but they can now deduct just 25 percent. While charities anticipate this new law will lead to fewer and smaller donations from the wealthy, New York legislators maintain that it will bring in up to $100 million in revenue for the state.

At the federal level, Obama has twice tried to introduce legislation that would reduce the percentage of charitable donations that wealthy Americans can deduct (in this case, couples who make over $250,000 or individuals who make over $200,000, which would affect a much larger percentage of the population than the New York bill) to 29 percent, in hopes that this would bring in more money for health care and other areas in need of funding. While Obama stated that this policy would help correct discrepancies “that have disproportionately benefited high-income Americans and corporations,” according to a Chronicle article, many feel that it would have the unintended consequence of taking dollars away from charities and those who use their services—two groups already hit hard by the recession—as wealthy donors may donate less if they cannot write off as much.

While Obama’s proposed plan may bring some parity to how much wealthy and less wealthy donors can write off, it seems likely that donors who cannot write off as much of their donations will give less. Research has shown that there are numerous reasons donors give and that donors do give, at least in part, for tax benefits. A 2007 survey of affluent donors (those with a net worth of more than $5 million) found that while other considerations ranked higher for the reasons behind giving (such as belief in a particular cause or giving back to society), a sizable proportion of donors did donate for tax benefits (33 percent of those surveyed). Other sources, such as the book The Seven Faces of Philanthropy, state that donors give for a handful of key reasons, tax benefits being one of these reasons. New York Mayor Michael Bloomberg (who himself just pledged half of his $18 billion fortune to the Warren Buffet and Bill and Melinda Gates effort to get the richest Americans to leave their fortunes to charity) emphatically stated that given tighter limits on write-offs, larger donors would give less. Quoted in the Chronicle Bloomberg said: “For a small amount of incremental revenue to the state, they [legislators] will discourage, consciously or subconsciously, others from giving away money.”

JVA Vice President of Client Services, Wendy Longwood, has worked extensively with donors large and small and agrees that this legislation will likely reduce donations, saying that large donors are “smart money managers” who consider both philanthropy and the bottom line when choosing how much and where to give. In considering the legislation enacted in New York, she points to another potential issue that could arise as other states enact similar legislation: Savvy donors who do care about the size of their write-off may take their donations to charities in states with more donor-friendly laws, which could lead to competition among states to woo donors.

Others worry that other states may adopt this practice in order to bring in more revenue. Says Darryl Brown, an independent fundraising consultant in New York, “It’s a very bad precedent for charities—any hindrance to giving is a bad thing during these bad times—and the issue could spread elsewhere at lower thresholds as municipalities grow more desperate for revenues,” warning that, “The $10M earner (the threshold set in this budget) in New York, may be your $250K prospect in Peoria in the next budget cycle or two!” And he’s not the only one—Abigail E. Disney, a prominent New York philanthropist (and grandniece of Walt Disney), was quoted in another Chronicle of Philanthropy article as saying: “New York is a leader in philanthropy, so what New York does I can’t imagine other states won’t follow.”

Nonprofits  themselves have taken action, with New York-based and national nonprofits creating petitions against the legislation. One such petition included signatures from such heavy hitters as the American Red Cross and United Way, and included the following statement (to read the full petition, click here):

This cap would reduce charitable giving and undermine our ability to help ensure that individuals and families have access to food, utilities and housing, and assistance in finding a job or an education during these challenging economic times.

Another troubling aspect of this legislation to some was what didn’t end up in the bill that passed—hedge funds, film companies and the beverage industry were all targeted as places for cuts, but in the final bill, it was nonprofits that took the biggest hit. Brown chalks this up to pervasive lobbying on the part of these industries.

Because this legislation has not yet been passed in other states, there is still time to voice your opinion for the state of Colorado. If you feel strongly one way or the other about this legislation, contact Senator Bennet (303.455.7600) or Senator Udall (877.768.3255) to let them know how you feel.

Let us know how you feel about this legislation by clicking here and telling us if you would want to see the state of Colorado cap the percentage of donations that wealthy donors can write off, and how you think such a bill will affect nonprofits in New York and the rest of the country.


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