Creating longer lasting tax incentives for charitable giving, supporting non-governmental charity foundations, and creating a personalized funding mechanism for Puerto Rico in its recovery from Hurricane María are some of the proposals Albany Law School Professor Danshera Wetherington Cords proposes in her upcoming research article assessing the specific needs that Puerto Rican victims still have on the island.
Cords, who has published numerous works on charitable contributions for disaster relief, including articles based on the formidable Hurricanes Katrina in Louisiana and Sandy in New Jersey and New York, is currently in Puerto Rico researching the damage that Hurricane Maria caused and interviewing victims to see how important a longer tax incentive period for charitable giving really is.
Many charitable organizations depend on the money they receive from donors, and now, more and more charities are worried about receiving these funds due to the 2017 Tax Cuts and Jobs Act. Donating to charitable organizations is considered to be an itemized deduction, meaning that if you donate to a charity, this money cannot be taxed, therefore creating an incentive for people to donate.
With the 2017 tax reform act the number of people who became eligible to itemize their deductions dropped, meaning a “much smaller amount of the population has an incentive to make charitable contributions,” said Cords.
The act raised the standard deduction amount, the amount of money that is not taxed, to a higher amount, leading filers to choose standard deduction instead of itemized deduction. This results in providing less of an incentive for people and corporations to donate to charities with standard deduction.
Among the many conclusions Cords has drawn on disaster relief and charitable giving, from studying previous Hurricanes, one of them is how “the work of nonprofit organizations is more effective in the short run on providing relief for individuals, households and even small businesses” and that “in terms of rebuilding housing and community structures, those organizations are more effective to get those kinds of people more assistance and more effective help than having the federal government oversee those things because of the bureaucracy and the politics involved in getting the appropriations,” said Cords.
In her research from the short time visiting the island, the professor asked citizens their take on the island’s recovery. She found that people feel that non-profits and NGO’s with connection to the government, and many of the non-profits that did receive grants from the federal and state governments, were perceived as not providing as much or as effective assistance in part because of the “bureaucratic hoops” that were required.
Cords also highlights FEMA’s ineffectiveness when disbursing recovery funds in a timely fashion after a disaster occurs, a situation that has been seen with Hurricane Sandy, as FEMA still hasn’t disbursed the total amount of funds it received in 2012.
“FEMA hasn’t been reformed and the appropriations process hasn’t been reformed, despite proposals to do that dating back to Harry Truman,” said Cords.
Cords also mentions that the longer a natural disaster is covered on national television, the more likely people are to donate. In 2017, giving went up due the numerous catastrophic events that occurred in that year and the permanence of those topics on news media. However, shortly after Hurricane Maria passed in late September, a man opened fire on a crowd of concertgoers in Las Vegas, killing 58 people; this consumed the national news and Hurricane Maria was quickly forgotten.
Due to the 2017 tax reform act, statistics say that in 2018 individual giving went down 2 percent which, according to Cords, is less than expected. On the other hand, corporate giving went up, but it is still too early to tell if that trend is going to continue.
After Hurricane Katrina, congress passed legislation and offered a considerable incentive to donate but the period only lasted until late 2005, the year the hurricane passed.
Tax relief was given to those who took in displaced people and employers who kept their employees on unemployment for an extended amount of time. People who wanted to give to charities could, with no limits, receive up to 100 percent of AGI (Adjusted Gross Income) allowed as a charitable contribution if they itemized their tax deductions for that period of time. However, there was no limitation on the type of charity you could donate to, which allowed for some ill-intentioned charities, like the Red Cross, to benefit substantially. The incentive was meant to increase donations to all charities, not just disaster relief ones.
With that in mind, Cords proposes making contributions for charitable giving to disaster relief organizations deductible in all events and limiting it to only disaster relief organizations while also making it on a permanent basis, not just when a big disaster happens.
The need to make these charitable contribution incentives permanent is imperative given the increasingly concerning and irrevocable effects of climate change the world will be seeing in the upcoming future.
“The National Oceanic and Atmospheric Administration estimates that the amount of damage caused as a result of climate change will increase by 7.3 billion dollars each year for the next 30 years. It’s not gonna get better,” said Cords.
Cords hopes that with her recent research in Puerto Rico, Congress will be open and willing to make changes to the charitable deduction policy in the 2017 Tax Cuts and Jobs Act, something that is plausible considering the fact that congress asked Secretary of the Treasury Steven Mnuchin, to provide as much information as possible regarding the negative effects that changing the availability of the deduction could have on charitable giving.