Tax Codes Changed, Giving Didn't

FIVE years ago, the 1986 Tax Reform Act was being heralded as a catastrophe for charities, with nonprofit groups such as museums expected to lose a collective $11 billion due to fewer incentives in the new law for giving. Five years later, nonprofits are experiencing business as usual. Many nonprofits are facing budgetary difficulties because of the recession, but no one talks about that momentous change in the tax laws. Maria Giliotti, development director at the Philadelphia Museum of Art, noted that the 1986 tax code has had "no effect on our cash contributions or gifts of objects. They're continuing to rise." Larry TerMolen, vice president of development at the Art Institute of Chicago, also claimed that "we're ahead of 1986 in both cash and objects."

The new tax code was believed by some to threaten nonprofit groups and institutions by lowering the top marginal tax rate from 50 percent to 31 percent. This reduced the charitable deduction for every dollar donated from 50 cents to 31 cents for those in the highest income brackets. It also eliminated the non-itemized deduction for charitable contributions.

Independent Sector, a Washington-based lobbying group for nonprofits, which had calculated the $11 billion drop-off in giving, predicted a $6 billion loss in gifts by taxpayers who do not itemize deductions. This loss was never realized.

Results over the past five years appear to bear out the view of tax reformers that tax considerations do not figure in individuals' decisions about giving. It had long been recognized that corporate giving, for instance, is more tied to a variety of internal factors: a company's sense of social or community responsibility, a high-level executive within the organization who directs contributions to a certain area, or the prosperity of the business.

A study conducted by the Rockefeller Brothers Fund and financed by Independent Sector also concluded that, as long as they have disposable income, Americans will regularly make contributions to charities.

"There are countries all over the world where no tax breaks exist for giving, and people still do a lot of giving," noted Stephen E. Weil, deputy director of Washington's Hirshhorn Museum.

Increased contributions in the face of declining tax benefits, however, have not led those who lobby against tax changes to change their minds. Although charitable giving as a whole has gone up since 1981, giving per capita by higher income groups has gone down, according to research conducted by a number of nonprofit lobbying groups.

SINCE 1981, when the top marginal tax rate was reduced from 70 percent to 50 percent by the tax reform act of that year, cash contributions have dropped 17 percent for people earning between $100,000 and $200,000 a year, and an even greater 35 percent for those earning between $200,000 and $500,000. Those earning under $35,000 have apparently made up the difference. Lower- and middle-income people are increasingly responsible for keeping charities going.

Edward Able, executive director of the American Association of Museums, noted that the declining level of giving by those with the most money has made the "donor base" of most nonprofit institutions "far more fragile," as a downturn in the economy may wipe out many givers who, in better times, would contribute. The fiscal problems of many nonprofits these days can be traced to this fact.

The only indication that a strong connection exists between tax law and charitable giving may be seen in donations of objects to museums. In 1986 the "alternative minimum tax" of 21 percent was established to ensure that no one with a substantial income could claim so many deductions as to pay no taxes at all. Under the new law, the tax benefit from the charitable donation of an object was based on the piece's original value when it was purchased, not on its appreciated value.

Until New York Democratic Sen. Daniel P. Moynihan last year pushed through a measure reversing the designation of donated artwork as a tax preference area, museums (90 percent to 95 percent of whose collections are composed of gifts) complained that gifts were sharply reduced.

Between the enactment of the 1986 tax code and Senator Moynihan's change last year, the most notable change in the art world was not in terms of charitable giving but in the market for art, which exploded with wildly high prices for impressionist and other paintings. Would-be donors decided to sell works, which were bought by many foreign collectors who took advantage of the declining value of the dollar vis-a-vis other world currencies. Finally, one can see a connection between government action and ho w

people dispose of their artwork.