Louisville nonprofit leaders told Insider that they worried the pending tax law would reduce charitable giving, which would undermine programs for some of the region’s most vulnerable populations including the hungry, the homeless and the abused.
“This is an outright existential threat to many nonprofit organizations in our community,” said Greg Nielsen, CEO of the Louisville-based Center for Nonprofit Excellence.
The tax bill, which has passed both houses of the U.S. Congress and is awaiting the signature of President Donald Trump, will cut taxes for many families and businesses.
However, local nonprofit advocates said that a provision to increase taxpayers’ standard deduction will reduce the tax incentive for charitable giving.
The new law will nearly double standard deductions to $12,000 for individuals and $24,000 for couples. Those amounts are subtracted from people’s income before taxes are calculated, thereby lowering people’s taxable income.
For example, an individual who earns $50,000 next year will have taxable income of $38,000 ($50,000 – $12,000). Actual figures can vary dramatically depending on many factors including the number of dependents and retirement contributions.
The closer people are to the threshold, the less likely they are to file an itemized tax return, which allows them to forgo taxes on expenses including mortgage interest, medical bills and charitable contributions. People who take the standard deduction lose the tax incentive to give to charity.
Nonprofit agencies worry that the loss of the incentive will mean that fewer people will make charitable contributions next year — or at least will reduce the amount they’re giving.
Charities are one of the big “losers” of the tax law, said David Dubofsky, professor of finance at the University of Louisville.
The National Council on Nonprofits projects that the share of people who itemize will fall from 30 percent to less than 10 percent, and that charitable contributions will fall by $13 billion next year. In Kentucky, about 21 percent of taxpayers itemize, and 82 percent of those claim the charitable deduction.
“We are very concerned,” said Pam Darnall, president and CEO of Family & Children’s Place, a Louisville-based nonprofit that helps children who have been hurt by abuse and family violence.
Middle- and lower-income families, who are the most likely to give to human service nonprofits — rather than to higher education and health care organizations — will think twice about whether they can afford to give or how much they can give, she said.
With funding cuts, Darnall said, her organization would have to look at what services it can still provide and at what level.
“There’s no guarantee for any programs,” she said.
Family & Children’s Place employs about 100. With a budget of just under $7 million, the nonprofit last year provided counseling, support and treatment to nearly 3,100 families that had an average annual income of about $14,000.
David Yarmuth, director of community relations for the Salvation Army, said that even large nonprofits are likely to feel the pinch.
“We’re going to be facing some obstacles,” he said.
The Salvation Army’s services include fighting hunger, human trafficking and domestic violence. It served more than 100,000 meals to the hungry in Louisville this year and provided about 35,000 nights of shelter. About 82 cents of every dollar of donations goes into services.
For many charitable organizations, budgets are tight already, which means that a loss in funding almost always means a loss in jobs and services, the nonprofit leaders said.
“Our fear (is) … it’s going to hurt vulnerable populations,” Yarmuth said. “I think everything is on the table. We’re bracing ourselves.”
The uncertainty about the law’s impact, too, is weighing on the nonprofit leaders.
“We just simply don’t know what’s going to happen,” Darnall said.
Danielle Clore, executive director and CEO of the Kentucky Nonprofit Network, said nonprofits lobbied Congress to include in the law a universal deduction that would have allowed any taxpayer — whether they itemize or not — to get a tax break for a charitable contribution, but Congress deemed that provision too expensive.
To plug the deficit hole that is expected to be created by the new tax law, Congress likely also will cut spending down the line, and that likely will increase the need for the services that nonprofits are providing at a time that they’re seeing a decline in contributions, Clore said.
“It’s a really scary time and it’s really frustrating,” she said.
The nonprofit leaders emphasized that services provided by local charities do not just help their clients, but the community as a whole, because their intervention produces stronger and healthier families and more people with the independence and skills to become productive members of society.
In addition, Nielsen said, many programs that will be hit — health, environment, arts — affect areas that make Louisville a special place to live.
“The real story is about what this is going to do to communities,” he said. “It’s really not a nonprofit issue. It’s really a community issue.”