President Donald Trump’s plan to lower tax rates will be “disastrous” to charitable organizations, and could affect the amount of donations given to private universities like Chapman, said President Emeritus Jim Doti.
While Doti said it is too early to make exact predictions about a potential decrease in donations to Chapman, he explained that when tax rates are lower, the incentive to donate to a nonprofit diminishes.
“When donors give to higher education or any philanthropic nonprofit organization, they have the opportunity to deduct those donations from their taxable income,” Doti said. “The issue with Trump’s policies is he would like to lower tax rates. That decreases the incentive to give philanthropically because you’re not going to save as much. The higher the tax rate, the greater the savings.”
According to the Tax Policy Center, Trump’s plan would decrease charitable giving by an estimate of 4.5 to 9 percent.
Doti explained that, before Trump’s tax plan, if someone makes a $300,000 donation to Chapman, that amount can be deducted from that person’s income before it’s taxed. As a result, the person would have fewer federal taxes to pay.
But, in addition to reducing tax rates, Trump’s plan would put a limit of $100,000 on deductions, according to the Tax Policy Center.
Although this cap would raise more than $1 trillion over a decade, this means that any donations more than $100,000 will not include any tax benefit, which Doti said will eliminate the incentive to donate more than $100,000.
The deduction cap would also affect how married couples donate, as their limit would be $200,000.
According to Business Insider, this means that if wealthy couples want to donate $1 million and put their name on a college building, they would only be able to deduct a fifth of that.
The final component of Trump’s tax plan that Doti said could decrease donations to Chapman is the elimination of estate tax, which is a federal tax on someone’s right to transfer property after death and takes into account everything the person owns.
Current law states that you can give $5.45 million to heirs tax-free, according to Forbes, but any amount higher than that requires an estate tax of 40 percent.
The wealthier a person is, Doti said, the more estate tax he or she will have after death. People in that high wealth bracket prefer to give as much as they can before they die because it will make their estate tax lower.
“Let’s say I have a $100 million estate,” Doti said. “If I die after the first $10 million, I have to pay a huge estate tax on the $90 million. I’m inclined to say, ‘Why should I give it to the government when I can give it to Chapman University?’ This way, it goes to a great cause rather than paying it in estate tax.”
In a 2004 study, the Congressional Budget Office estimated that eliminating estate tax would decrease donations to charity by an estimate of 6 and 12 percent.
Donors play a large role in making Chapman affordable, Doti said. Without donations for scholarships, he estimated that tuition would be at least double what it is now.
“Yes, I am concerned,” he said. “As a private institution, just look toward the Center for Science and Technology, look toward the campus and the buildings. Think of the endowment we have that helps support scholarship funds. When people give, they give significantly to scholarship support. There’s no question that, generally, capping deductions or lowering rates would have a detrimental effect on giving.”
However, President Daniele Struppa added that reducing tax rates means that people will have more money to spend, which could translate to an increase in donations.
“The arguments we make, however, are not based on how much they can deduct, but rather on the reason for the donation,” Struppa wrote in an email. “Most people are sensitive to the importance that education has for a strong, stable society, and are willing to invest in the future of their country through donations.”