Opinion Page: A Tax Deduction Won’t Save U.S. Charities

From the Wall Street Journal, June 22, 2023:

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The decline in giving understates the challenge. Many nonprofits receive more revenue from earnings—fees for medical and social services, tuition, event tickets and the like—than donations. As rising prices strain budgets, charities encounter buyer resistance. The Girl Scouts have struggled with the effects of inflation on cookie sales. Since staff salaries are a large portion of charities’ spending, demands for higher wages also play a role.

According to Giving USA’s inflation-adjusted estimates, all three main sources of philanthropy—corporations, individuals and foundations—cut back last year. At 6.4%, the decline in individual giving measured in nominal dollars approached that of the Great Recession, when philanthropy plummeted. Factoring in 2022’s inflation more than doubled the drop.

All kinds of charities saw giving slide. Inflation-adjusted declines for education and “public-society benefit” organizations (such as political advocacy, community development and policy research groups) exceeded the national drop, while giving to the arts, environment and human services almost matched it. Donors kept supporting religion and healthcare at close to 2021 levels.

This year may be almost as bad as 2022. If the Biden administration and Congress are serious about cutting federal spending, charities may also face cutbacks in government grants and contracts—second in importance to earned income for nonprofit revenue. If economic growth slows, that would make things worse.

A bipartisan group of U.S. senators, backed by thousands of nonprofits such as the YMCA and the United Way, insist on another reason for the decline: the lack of a tax incentive for most Americans to support charities. That’s why senators and charities are promoting a new deduction for giving. But the tax break the lawmakers propose is unlikely to spur giving and may make inflationary pressures worse.

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darryll k. jones