With the House of Representatives set to hold hearings Thursday on the future of the charitable tax deduction, Americans say they strongly oppose capping or cutting the deduction to help solve the debt crisis facing the country, according to a Dunham+Company national study conducted by Wilson Perkins Allen Opinion Research.

Seventy-five percent of Americans continue to say they value the deduction as it currently stands. And 61 percent say they feel strongly about maintaining the current deduction, up from 56 percent in January 2012. Only 9 percent strongly disagree, which is up from 5 percent a year ago.

The strength of support for protecting the charitable tax deduction cuts across geographic boundaries, with 70 percent of those in the Northeast and West supporting it, 76 percent in the Midwest and a high of 80 percent in the South. In addition, key groups of President Obama’s 2012 coalition also indicate overwhelming support for not cutting or capping the deduction (see chart below).

This support for the charitable deduction goes even further, as only 20 percent of Americans believe cutting or capping the deduction is vital to solving the debt crisis. The findings of the survey showed that no group of Americans wants the capping or cutting of the charitable tax deduction to be used as a way to solve the debt crisis, including key groups of President Obama’s 2012 coalition (see chart below).

“The support for protecting the charitable tax deduction among the American public continues to be exceptionally strong,” said Rick Dunham, President+CEO of Dunham+Company. “Regardless of household income, education, age, race, or gender, Americans do not want the deduction to be hurt in any way as Congress and the administration debate how best to deal with our national debt crisis.”

Nearly 6 out of 10 (59 percent) of respondents to the survey said they believed that capping or eliminating the deduction will cause a drop in donations. According to Giving USA, which is the longest running and most reliable report on the sources and uses of giving in America, charitable giving is in uncharted waters, having gone through its single greatest historical decline from 2007-2009 (an approximate $30 billion drop), and still continues $13 billion down as of 2011, the latest data available from this report. The prospects for recovery are bleak as another report, the Blackbaud Charitable Giving Report which is based on overall giving data from 3,144 charities across America, indicates that for 2012 there was only a 1.7 percent increase in giving, and this is against inflation of 2.1 percent, which means there was no real growth in charitable support.

The Dunham+Company study was part of Wilson Perkins Allen Opinion Research’s January Omnibus Study of 1,000 adults nationwide. All respondents were contacted via Random Digit Dialing methodology. Interviews were conducted via live telephone interview Jan. 10-13, 2013. A sample of 1,000 has a margin of error of plus or minus 3.1 percent at the 95 percent confidence level.

U.S. postage rates will increase on January 27, 2013, with nonprofit rates going up between one and four percent. But the postage increase is only the tip of the postal rate iceberg for nonprofits that face renewed Congressional attention on the idea of removing the nonprofit postage discounts altogether.

From Philanthropy.com:

Independent Sector and eight other groups asked a powerful Congressional committee Tuesday to preserve discount postage rates for nonprofits as it drafts legislation to change how the U.S. Postal Service works.

The Postal Reform Act of 2011 had proposed eliminating the nonprofit discount, which cost the postal service about $1.3-billion in 2011. The provision was removed last year during Congressional negotiations, but the comprehensive postal bill died. It is expected to be considered again this year by the new Congress.

Donors indicated that their giving in 2013 will revert to recession-like levels, with 27 percent of adults – the same percentage as 2009 and 2010 and more than double the percentage in 2012 – saying they would be giving less in the coming year (see graph below).

“Although Americans feel their personal economic situation is more stable, the findings from this year’s study mirror the findings during the depths of the recession, which is not good,” said Rick Dunham, President+CEO of Dunham+Company.

“Our research has shown that charitable giving is at risk when there is uncertainty in the economy as people conserve out of fear for what the future might hold. With the uncertainty over the implications of what might be done during the debt ceiling negotiations regarding tax rates or deductions and the continued ambiguity around the effects of Obamacare, there is plenty for Americans to worry about, so we should not be surprised if there is a downturn in charitable support.”

View the study findings (PDF download) (867KB)

In addition, those indicating they would give more than usual to charity in the coming year fell 30 percent from 2012 – the lowest level of intent to increase charitable support since 2008. Those indicating they would give the same to charity in 2013 fell 10 percent from 2012.

Individuals who indicated they would give less in 2013 cut across demographic lines. However, the most significant shifts were among those 45-54 years old, which is a key giving demographic and represents those in their key earning years, as well as those 65 and older. There was a 20 percent jump in those 45-54 who said they will decrease giving and an 18 percent increase among those 65 and older who said the same.

The intended reduction in giving was spread evenly geographically.

And although the study indicated middle-class America (those earning less than $100,000) was the group most likely to decrease giving, nearly twice as many of those making $100,000 or more — who make up over 60 percent of all charitable giving — indicated they would pull back this year compared to last.

This pullback in giving is expected in spite of households feeling their financial situation is more stable. The percentage of households who said their budgets have not decreased has doubled since 2009. In 2009, 18 percent of households said their budget had not decreased, but in 2013, 39 percent indicated the same.

In addition, respondents said they are spending more on entertainment and continuing to put money into savings.

“Since 2008, the Dunham+Company State of Philanthropy study has accurately predicted the direction of giving for the coming year,” Dunham concluded. “Based on this year’s study, it’s clear that charities will be sailing into a headwind in 2013 and that the slight recovery in charitable giving over the last few years will be in jeopardy. It’s not good news that giving will most likely decline at a time when most charities are still trying to recover from the 2008 recession.”

This study of adults nationwide was conducted on behalf of Dunham+Company by Wilson Perkins Allen Opinion Research. Respondents were contacted by a live telephone operator for an interview Jan. 10-13, 2013. The study has a sample size of 1,000 adults nationwide, with a margin of error of plus or minus 3.1 percent.

As we are all well-aware by now, Congress has passed–and President Obama has signed into law–legislation known as H.R. 8 to avert the fiscal cliff facing the American economy. There are a number of complex provisions in H.R. 8, some affecting charitable giving.

The purpose of this special update is to provide a summary of the provisions which will most directly impact charitable giving and to provide a simple explanation of one of the more complex provisions of the new law called the Pease Amendment.

If you’d like a detailed analysis of the financial planning implications of H.R. 8, click here.

For charitable giving, here are the five highest-impact provisions.

• The tax rate stays the same for all taxpayers except for those individuals making $400,000+ and families making $450,000+. For these households, the tax rate increases to 39.6 percent from 35 percent.
• The tax rates on capital gains and dividends for these same households will increase to 20 percent from 15 percent and will stay at 15 percent for all others.
• The value of all deductions (including the deduction for charitable contributions) will be reduced by 3 percent of income over $250,000 for individuals and $300,000 for families, up to 80 percent of total deductions. This provision is the reinstatement of what is known as the “Pease Amendment” (see explanation below).
• The estate tax exemption stays at $5 million per person ($10 million per couple), indexed for inflation (so $5.25 million in 2013), but the tax rate on estates over this amount has been increased from 35 percent to 40 percent.
• There is a two-year extension on tax-free distributions for charitable purposes from IRAs held by those 70.5 years old and older. These distributions can be up to $100,000 per taxpayer, per taxable year.

There are a variety of opinions on the net impact of these changes on charitable giving, the most disconcerting being the reinstatement of the Pease Amendment. This limitation, known for its author, Congressman Pease, works this way. If a family makes $400,000 (which is $100,000 more than the $300,000 threshold), their total deductions would be reduced by $3,000 (which is 3 percent of the $100,000 difference above).

Some believe this provision will have little to no effect on giving. Others are concerned it will have a large impact. Frankly, only time will tell.

In reviewing these changes, I would encourage the following:

• With the rise in the capital gains tax for high income earners, there has never been a better time for your major donors to gift appreciated assets to your organization. By gifting an appreciated asset, the donor gets to write off the full fair market value of the asset rather than selling the asset and losing 20 percent of the value to taxes. In addition, the charity gets the full amount of the asset rather than the asset being reduced by 20 percent.
• Communicate to your donors that if they are 70.5 years old or older they can make a tax-free distribution from their IRA, up to $100,000. This is a great opportunity to steer money out of an IRA without any tax consequence but is only guaranteed for 2013 and 2014, so the clock is ticking if a donor wants to take advantage of this provision.
• Households making $450,000 or more will get a higher value for their contributions as their effective tax rate has been raised to 39.6 percent. The only caveat is related to their overall deductions and the impact of the Pease Amendment.

The best news from H.R. 8 is that the charitable deduction was not capped at 28 percent as the Obama Administration has proposed over the last 4 years, nor were deductions capped overall as the Republican leadership had been considering. However, we believe these proposals may be reintroduced in the coming months, so stay tuned…

A plurality of Americans around the country oppose limiting or eliminating the charitable tax deduction for households earning more than $250,000 annually, according to a recent Dunham+Company/Wilson Perkins Allen study.

The survey was conducted Dec. 6-9 as lawmakers in Washington discuss ways to avoid the fiscal cliff facing America if the spending cuts and tax increases set to go into effect Jan. 1 are not somehow addressed.

Forty-six percent of Americans surveyed said they opposed limiting or eliminating the charitable tax deduction for households making $250,000 or more a year, compared to 39 percent who said they favored it and 15 percent who were undecided. Opposition was strongest among households making $100,000 or more (57 percent), Hispanics (54 percent), women (49 percent) and households earning less than $30,000 (48 percent).

“Giving USA data shows that households making $250,000 or more a year contribute over $100 billion a year to charity in this country,” said Rick Dunham, President+CEO of Dunham+Company, the fundraising consulting firm that commissioned the study.

“It is especially important that a majority of Hispanics as well as a strong plurality of women, a key giving group, say they do not favor eliminating or limiting the charitable tax deduction on these households,” he said. “As we witnessed in the presidential election, these are key voting blocks.”

The majority of those living in the South (51 percent) also indicated their opposition to limiting or eliminating the charitable tax deduction for high-income households.

In contrast, a plurality of respondents in the Northeast (44 percent) indicated they favored the measure. This mirrors levels of generosity by state, based on The Chronicle of Philanthropy study, “How America Gives.” According to that study, 7 of the top 10 states for giving are in the South and the five worst states for giving are in the Northeast.

“Studies have consistently shown that Americans want to see the charitable tax deduction preserved,” Dunham said. “In April 2011, Gallup asked if the charitable tax deduction should be eliminated to reduce the federal budget deficit and 7 out of 10 Americans said no. And our study earlier this year showed that 78 percent of Americans opposed touching, changing or eliminating it for any income group.

“Now Americans, even those making less than $30,000 per year, are telling us they want the charitable tax deduction preserved as it is for households making $250,000 or more. I believe Americans understand that the giving of these households is vital to sustaining the work of charities, which is so important to so many.”

This study of adults nationwide was conducted on behalf of Dunham+Company by Wilson Perkins Allen Opinion Research. Respondents were contacted by a live telephone operator for an interview Dec. 6-9, 2012. The study has a sample size of 1,033 adults nationwide and a margin of error of plus or minus 3.1 percent at the 95 percent confidence level.

The study asked donors what they intend to give compared to last year in four categories:

• Their favorite charities;
• Charities they’ve supported in the past but not their favorite charity;
• Houses of worship; and
• Charities they have never supported before.

Almost 8 out of 10 donors (79 percent) say they will give the same as last holiday season to their favorite charities. However, about 1 in 6 donors (15 percent) say they will reduce their giving and only 6 percent say they will give more.

When it comes to supporting charities that are not their favorite, but they have supported before, 42 percent of donors say they will be pulling back on their giving compared to last year. The outlook is even worse for charities that donors have never supported before, as nearly 1 out of 2 donors (46 percent) say that compared to last year, they are less likely to support charities they have never supported before.

Even houses of worship can expect a decrease in giving, as 23 percent of donors say they will give less to the place they worship than last year. One bright spot is that those who frequent services (defined as “almost weekly or more”) indicate they will more likely increase giving rather than decrease (16 percent compared to 12 percent).

Donors indicate that there are four major reasons they will pull back on giving this holiday season compared to last year: health care costs (36 percent), their personal financial situation (35 percent), uncertainty over the economy (34 percent) and the prospect of the “fiscal cliff” (32 percent).

“The ongoing concerns over the economy and its impact on the personal financial situation that many donors face is clearly continuing to take a toll on charitable giving,” said Rick Dunham, President+CEO of Dunham+Company.

“This is a real concern as many, if not most, charities rely on the final month of the year for the largest portion of their financial support. And with annual charitable giving here in the U.S. still $12 billion below 2007 levels, and no real recovery so far this year, this is not an encouraging sign for nonprofits as they head into these final and vital weeks of fundraising for 2012.”

The Dunham+Company study was part of a Campbell Rinker Donor Confidence Survey conducted Nov. 13-17, 2012 among 458 U.S. adult donors who had given at least $20 in the previous year. The online responses were weighted by age to reflect the general U.S. population per the 2010 census. The margin of error is plus or minus 4.6 percent at the 95 percent confidence level.

In 2011 this group ended up with an average increase in private donations of 7.5 percent. This is good news for this group of charities. But how did evangelical ministries that made the list fare? The following is a list of those ministries that do not rely on more than 50 percent of their income from gifts-in-kind:

While the data shows that ministries in every sector (media, missions, cause-related) fared well, it also shows that many Christian ministries struggled with their fundraising. With a median increase of only 1 percent, ministries, on average, experienced a 2.2 percent decrease when adjusted for inflation. And compared to overall philanthropic growth of 4 percent as reported by Giving USA, the average evangelical ministry fell far short of the growth of the sector. In fact, only 37 percent of the evangelical ministries in the Philanthropy 400 met or exceeded that 4 percent goal.

By any measurement, 2011 was a difficult year for ministry fundraising for most ministries.

As we look to the final quarter of 2012, early indications from the Philanthropy 400 are that 2012 will end up being a much more difficult year for charities than 2011. In a recent article in The Chronicle of Philanthropy, Raymund Flandez and Marisa Lopez-Rivera report, “… the outlook among the top 400 charities is far less optimistic for 2012, with nonprofits forecasting a median gain of less than 1 percent.”

According to Giving USA, charitable giving has fallen from a high of $311 billion in 2007 to a low of $281 billion in 2009 and has since recovered to $298 billion in 2011. But The Center on Philanthropy at Indiana University predicts it will take five years for giving to recover to 2007 levels at the current pace.

“This data is both good news and bad news,” says Rick Dunham, President+CEO of Dunham+Company. “The good news is your ministry is not alone if you are struggling to raise money. The bad news is that the challenge of raising money is not easing and will continue for the foreseeable future, especially if the charitable tax deduction is capped or limited, as both presidential candidates have proposed.

“Now, more than ever, ministries need to focus on the consistent execution of fundraising fundamentals if they hope to maintain or grow revenues.”

Although neither candidate has proposed eliminating the deduction, President Barack Obama has repeatedly tried to chip away at it in his annual budget proposals, and Republican challenger Mitt Romney has been vague about his plans, leading some Obama supporters to speculate that Romney would have to eliminate the deduction to meet his fiscal goals.

Thirty-three percent of donors surveyed would reduce their giving if no such deduction existed. The intensity of that response increased among key giving groups, with 40 percent of 40-59 year olds (a vital giving demographic) saying they would reduce their giving. Forty-two percent of conservative donors say the same, and numerous studies, including one recently by The Chronicle of Philanthropy, have shown conservatives to be the most generous givers.

A Dunham+Company/Wilson Perkins Allen survey conducted earlier this year showed three out of four Americans say they do not favor cutting, capping or limiting the charitable tax deduction.

“Our studies have shown that the American people, regardless of household income, education, age, race or gender, say they overwhelmingly support the current tax deduction for charitable contributions,” said Rick Dunham, President+CEO of Dunham+Company. “And now in our latest study among donors to charities we have found the deduction is vital to one-third of those who give, especially key giving groups.”

President Obama wants to limit the deduction to 28 percent for wealthy households, which studies have shown would mean a $5 billion hit to charities. Romney wants a more radical approach of capping all deductions but he has yet to confirm specific recommendations.

The issue of fundamentally changing the charitable tax deduction by the presidential candidates is being raised at a time when the charitable sector has experienced an unprecedented drop in support as a result of the faltering economy.

According to Giving USA, charitable support peaked at $311 billion in 2007 and dropped by 2009 to $281 billion. It has since recovered to $298 billion but at the current rate, The Center on Philanthropy at Indiana University estimates it will take another five years to recover to 2007 levels of giving.

In addition, a recently released study of the top 400 charities in America by The Chronicle of Philanthropy shows that giving across the nonprofit sector is expected to only rise by 1 percent in 2012. This means giving is stagnant, and when adjusted for inflation is actually declining.

“It’s important to remember that 1 out of 10 jobs in America come from the charitable sector,” Dunham said. “And that charities are much more efficient in delivering social good as independent studies have shown that 70 cents of every dollar goes to recipients of charitable services compared to only 30 cents of every dollar from the government. The bottom line is that the charitable tax deduction needs to be protected as a vital incentive to supporting the vibrant and effective work of charities.”

The study was part of a Campbell Rinker Donor Confidence Survey conducted Sept. 7-18, 2012 among 454 U.S. adult donors of at least $20 in the previous year and members of the firm’s online panel, weighted by age to reflect the general U.S. population per the 2010 census. The margin of error is plus or minus 4.6 percent at the 95 percent confidence level.

The doctor I interviewed for the September appeal was great. We got into this geeky discussion of recent neuroscience and how it can shape behavior. He uses it with patients, to keep them on their meds. I use it with prospects, to gently guide them to give.

Still, he’s no direct mail expert. And he’ll be getting a letter to review, a letter I wrote, to be sent out over his signature. Is there room for misunderstanding? Oh, yeah.

Direct mail appeals are unlike any other writing on earth. So, to prepare him, I listed some of their “strange but true” aspects in the brief below.

Maybe you’ll find it helpful the next time a signatory looks at your draft appeal and exclaims, “Yikes! That doesn’t sound like me!”

Here are some of the odd things that make direct mail function well:

• Direct mail appeals are not brochures, with lots of details about the charity and its programs. Insiders care about that stuff. Outsiders don’t.
• Good direct mail appeals have a few standard components. They always have “entertainment value” (often a story, or intimacy: “Let me take you into my world.”); that’s what keeps people reading. They have multiple requests for a gift (inertia is a BIG problem, so you beat readers over the head with “asks”). They have a conversational voice: the letter signer talks directly to the letter recipient. The pronouns “I” and “you” are copiously present.
• Neuroscientists have observed in the lab that making a gift to charity lights up a pleasure center in the human brain. A good direct mail letter, therefore, “models” that act for the reader, by suggesting it repeatedly. The reader begins to envision the gift, and in envisioning starts to feel the pleasure.
• “You” is the most important word. It is classed among the top 20 or so “power words” in advertising because of its magical ability to raise more money.
• Effective direct mail appeals aren’t really about how wonderful the charity is. They are, instead, about how wonderful donors are. Making donors feel important is Job #1. It’s called “donor-centricity.” It’s exactly like “customer- centricity.”
• Neuroscience has discovered a very useful thing about our brains: “Even when people perceive that flattery is insincere, that flattery can still leave a lasting and positive impression of the flatterer.” In other words, you cannot overdo donor love.
• You wear your heart on your sleeve. Sounding corporate or technical will not raise as much money as sounding warm and welcoming.
• Researchers in fundraising, like Dr. Adrian Sargeant, who did his tests with National Public Radio, have found that so-called “social information” – such as how much others have given – leads to bigger and more gifts from average donors.
• Direct mail deeply respects reader convenience. Good direct mail is highly “skimmable”: short words, short sentences, short paragraphs.
• Professional direct mail – littered as it is with sentence fragments, ellipses (…) and grammatical no-no’s such as sentences that start with a conjunction – would earn an “F” in 10th-grade English class. But the products of 10th-grade English class would fail miserably in the mailbox.
• People tend to skim the underlines first, eye-motion studies show. So we underline key messages. You should be able to read JUST the underlines and kind of get what’s being asked of you. Corollary: you don’t have to underline the entire phrase you wish to emphasize. Since the eye sees “word clumps,” the NON-underlined words to the right and left of the underlined words will also be read.
• For the same reason, direct mail letters use devices like bullet lists and ultra-short paragraphs … because they make it easier to skim.
• There are two types of letters: those sent to people who have given previously, and those sent to people who have not. Those who have given before are likely to give again, often without even reading the letter. But it is very difficult to acquire new donors. From a mailing of 200 professionally- written appeals, maybe 10% will open the envelope. And from that 10%, only one gift will come in … for a one-half of one percent return. (And yet the math works, if you retain that new donor for awhile. The real money comes in subsequent years. The biggest gift a donor ever makes is usually around the 6th-8th gift, says one Canadian expert.)
• Certain phrases, like “tax-deductible” (which reminds readers that you’re a true charity), are repeated often, so they won’t be missed.
• We write (and review) these letters at 1 mph. Readers, though, read at 100 mph. Things that are said just once tend to be overlooked. When you read direct mail at 1 mph (listen up, reviewers!), it can sound choppy. That choppiness disappears at 100 mph.