Charity gift tax deductions are among many things on the table during talks to avoid the so-called “fiscal cliff,” and the state’s colleges and universities are concerned.
Experts have no doubt those donations will take a hit if tax deductions are trimmed and the effect would be felt most by educational institutions, which represent the largest single category of recipients of charitable gifts. It was not known Friday how the charitable tax deductions figured in congressional budget negotiations.
Such donations amounted to $42 billion in 2005, the most recent year for which such data are available.
Losing a portion of such hefty amounts could result in delayed construction, stalled athletic programs, postponed academic initiatives and increased operations costs.
Davidson College is an example of successful fundraising, having made headlines this year for receiving a $45 million grant from the Duke Endowment. The first installment was a $5 million check.
The college is in the enviable position of having a 64 percent participation rate when it comes to gifts from alumni. That’s the highest rate in the nation, says Gray Dyer, the school’s director of Planned Giving.
But who’s to say that won’t change if Congress not only raises tax rates but trims charitable gift tax deductions. That means donors will not only have less money, but they won’t get as much benefit from taking gifts off as deductions.
“I’m concerned that, if they change the charitable gift tax deduction, will our donors or alumni be asking themselves how philanthropic they want to be?” said Dyer.
“Are they influence by their taxes or influenced by their philanthropic inclinations? The tax code as it exists doesn’t force them to make that distinction.
“I think all nonprofits are wringing their hands over this.”
Donors are worried, too, he says, including school supporters who have done “personal tax gymnastics” to get in under the wire.
Some donors have tried to anticipate what the government will do, and pushed up their charitable gifts up to take advantage of current tax deductions, he said.
Others are doing the reverse, thinking the charitable gift deduction will stay as is, but overall taxes will go up next year, he said.
Gifts to the school’s “annual fund” are running about 2 percent ahead of this time last year, he added.
UNC Charlotte officials said fundraising is running well ahead of last year, too, but didn’t give a specific figure number.
Universities elsewhere in the state are also reporting increases, including a 34.5 percent increase for the annual giving program at North Carolina State University for fiscal year 2012. This due in part to a push that has added 3,000 new annual donors, officials said.
However, not all colleges and universities are suggesting the increases are due to a rush to avoid a potential loss of tax benefits.
Duke University, which has seen a 3 percent increase in gifts, has been encouraging donors to consider pre-paying installments of multiyear gifts to dodge any effects. In some cases, donors had done just that.
But Duke officials say any rise in gifts for that reason has been counterbalanced by potential donors who react to uncertainty over tax rates and deductions by simply not acting, whether or not that’s logical in their case.
In the long term, cuts in the tax benefits for charitable giving could have a major impact on donations generally, not just to higher education.
A cap of $50,000 for charitable tax deductions would slash giving by about $150 billion over 10 years, according to the National Economic Council, which advises the White House on economic matters. A cap of $25,000 would cut it by $200 billion.
Niles Sorensen, vice chancellor for advancement at UNC Charlotte, says the question is not whether donations will drop as a result of a tax law changes, but by how much.
Still, he’s optimistic, believing donors aren’t giving purely for tax reasons. He noted applications were up 15 percent over last year, when the university had its largest freshman class ever.
That suggests UNC Charlotte has created a momentum that will result in better fund raising, he said.
“I think people who are supporters of UNC Charlotte will continue to support the university,” he said.
“I’m sure we’d see a marginal decrease…The greater concern is if Congress can’t resolve things and we slip back into a recession.”