August 10th, 2011I recently had a friendly debate with a woman on Facebook about whether tax incentives really matter when it comes to charitable giving. My summary of the discussion was "it doesn't hurt!" The headline for a strong case for giving to a nonprofit organization certainly includes transparency as well as what impact is being made because of the programming of the organization. As I have written in past blogs, the reality of really getting the message out to the community on the good works of organizations is tough given constraints on budgets but really necessary.
In early May, the Michigan Legislature passed the Governor's tax reform package in a close vote and this bill eliminates the three charitable tax credits for gift to community foundations; public institutions, such as universities, libraries and public radio; and food banks and homeless shelters. These changes to the charitable tax credits are effective on January 1, 2012. Gifts made before midnight on December 31, 2011 may be used for the tax credit. We will be promoting these credits until the end of 2011.
The tax credit pertaining to community foundations has been in existence since 1988 having been passed in 1987. It provides up to a $200 State tax credit for gifts of $400 to community foundations for married couples and a $100 tax credit for gifts of $200 for a single person. Businesses can take a tax credit up to $5,000 on gifts of $10,000. In order to qualify for the tax credit though, all gifts have to go to permanent endowment only and does not include any "pass through" donations.
Michigan was the first state to have such a tax credit for gifts to community foundations and frankly it has been instrumental in growing the endowment of the Grand Rapids Community Foundation as well as the agency funds that we hold. The entire cost to the state of Michigan for the tax credit since its inception in 1988 has been $50M. HOWEVER, the endowed assets of Michigan's community foundations have grown to exceed $2B due in part to the offering of the credit.
So when we are working in partnership with the public sector, our dollars have definitely made a difference in braiding funding and leveraging dollars for our communities! We have definitely added tremendous value!
Yes I know the opposing view to this could read: "What do you expect the state of Michigan to do when revenues are severely diminished and we are all struggling to keep our state moving forward?"
The Grand Rapids Community Foundation will continue to grow and provide needed financial support and strong leadership in our area. We will miss the opportunity to introduce people to the community foundation using the tax credit as an incentive to come to know us and gain an understanding of philanthropy. It did provide a terrific way for us to establish relationships with new donors. We do feel confident though that our current and future donors will continue to support the work we do and to support the strength of building our community's endowment!
The looming concern on the horizon is the preservation of the federal charitable tax deduction which if eliminated or somehow diminished could have a devastating impact on the entire nonprofit sector in our country. But that's a topic for another blog entry!