Abolishing the Charitable Deduction will cost American charities billions

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Over its nearly 100-year history, the charitable deduction has become one of the most time-tested provisions in the Internal Revenue Code. But it has also been a perennial target by people on both ends of the political spectrum who want to eliminate or restrict it.

While economists have long studied the impact of the deduction, they have not reached a clear consensus on how much it matters. A new study, however, along with recently released IRS data make it quite clear that America’s charitable organizations could be hurt greatly if donors lost all or part of the charitable income-tax deduction as lawmakers seek ways to avert the looming “financial cliff.”

The new study of the wealthy and their philanthropy, released last month by Bank of America, asked affluent people (mostly with incomes of $200,000 or more and net assets of at least $1-million) how they might alter their giving if deductions were eliminated.

Just under 50 percent said their giving would remain the same. But nearly 49 percent said they would decrease their giving—and 20 percent of those people said they would “dramatically decrease” their giving. Less than 2 percent said their giving would increase.

Read Financial Impact on American Charity

Excerpts of an article by Robert Sharpe, a fundraising consultant

The impact on American charity of donors who itemize

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Some point out that most donors wouldn’t be affected by changes in the charitable deduction because 70 percent of Americans don’t itemize. While it is true that people who don’t itemize often give generously from their incomes, they don’t provide the lion’s share of the gifts that help fuel the nonprofit world.

In 2010, the 30 percent of Americans who itemize provided 79 percent of the money “Giving USA” reported that individuals donated to nonprofit organizations.

If a loss of the charitable deduction caused people who itemize deductions to reduce their giving by just 20 percent, that would mean a $34-billion drop in charitable giving, by far the largest decrease since the Great Depression. To put that in perspective, $34-billion is more than three times the sum that individuals donated to all U.S. colleges received last year (not counting bequests).

If nonprofits suddenly had to reduce costs by $34-billion, they could well need to eliminate 5 percent of their work force, or 680,000 jobs. That could increase the unemployment rate in the United States from 7.9 percent to 8.4 percent.

And if government cuts spending, charitable giving will have to play an even more important role in our society as those cuts inevitably put even more strain on the nonprofit infrastructure that enriches Americans’ lives in countless ways.

Excerpts of an article by Robert Sharpe, a fundraising consultant

Tip on deciding on how much to give to an individual charity

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Most of us feel generous in December, the top month for charitable donations, reports the Atlas of Giving. But regardless of when you give, you want to make sure that the funds are actually used to do real good.

A 2012 study from the Chronicle of Philanthropy reports that the median amount American households donate to charity each year is $2,564. That’s a nice chunk of change, but not if you’re divvying it up among dozens of organizations.

“For every gift, there are fixed costs associated with stewarding and tracking it,” adds Patrick Rooney, director of the Center on Philanthropy at Indiana University. “So the smaller the gift, the larger the percentage that goes to transaction and administrative costs.”

Jason Franklin, who teaches nonprofit management and philanthropy at New York University and is executive director of Bolder Giving, a nonprofit focused on helping Americans give more effectively, suggests using the 50/20/30 rule: Half your giving should be focused on one charity — the gift you’ll spend the most time thinking about.

Then set aside 20% for small impulse gifts and the final 30% for institutions you support on a regular basis, like your alma mater or your church.

The impact of women on the global economy

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Organizations today would never think of not investing in high growth markets like China and India. Yet they are still dragging their heels when it comes to investing in women, despite it being a win-win situation for the global economy, organizations and women themselves. This is not just a human rights issue — it also makes absolute business sense.

There is much compelling evidence that women can be powerful drivers of economic growth. Estimates show that if female employment rates were to match male rates, overall GDP would grow significantly in developing countries like Egypt by a massive 34%.

The World Economic Forum also published their annual Global Gender Gap report — the data suggests a strong correlation between those countries that are most successful at closing the gender gap and those that are the most economically competitive.

Over the next decade, the impact of women on the global economy — as producers, entrepreneurs, employees and consumers — will be at least as significant as that of China’s or India’s one-billion-plus populations, if not greater. If women’s economic potential can be successfully harnessed and leveraged, it would be the equivalent of having an additional one billion individuals in business and in the workforce contributing to the global economy. It’s for this reason that Ernst & Young has been involved in the Third Billion global campaign, which unites governments, NGOs, corporations, youth and others to partner toward ensuring women’s access to legal protection, education and training, finance and markets.

Charitable giving is not just for the wealthy

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As year-end approaches, a reminder that charitable giving does not have to be just for the wealthy.

One example of this, a modest slice of the philanthropy movement, are “giving circles” in which like-minded people pool their money and give a combined, larger gift to causes they deem important.

One of those, the One Percent Foundation, aimed at those in their 20s and 30s, was co-founded in 2007 by Daniel Kaufman, 33. As the name implies, participants donate 1% of their annual income. Over conversations while at UCLA School of Law, Daniel and friends realized they rarely gave to any significant causes. “Most of us felt we couldn’t afford to give, didn’t know where to give or thought our donation wouldn’t have any impact,” Kaufman said.

“Part of it is getting people in the mind-set that they can do this. With rent, student loans, credit card payments, many [young adults] think ‘No way,'” said Kaufman. “But if you change that to giving $20 a month, now it looks like a couple beers or going to the movies and buying popcorn. It totally changes how they think about giving.”

Elfrena Foord, a certified financial planner and co-founder of the California Plan Your Giving Project, says, “Everyone can leave a bequest to charity of something. We want to change the idea that you have to be rich to leave money to charity.”

Charitable bequests, leaving something behind in their wills to a non-profit cause, certainly aren’t a new concept. And many people, especially at year-end tax time, routinely make financial donations to causes they care about.

What the fiscal cliff means to nonprofits and their beneficiaries

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The so-called “fiscal cliff” that’s looming over the United States will significantly impact nonprofits and the work they do if not addressed by Congress before year’s end, the cliff referring to the combination of tax increases and budget cuts hitting the country concurrently on January 1.

Legislators are also talking about removing some of the benefits to charities in the tax code. One example: eliminating or capping the charitable deduction.

So for many nonprofits, these spending cuts and less disposable income really means standing at the edge of a gravesite. And in many cases, people live or die by some of the services nonprofits provide.

Consequently, demand for the social safety net services that nonprofits provide will rise even higher than the sustained, elevated level it’s been at since the recession.

Gasifying waste to produce an alternative source of electricity for Africa and Asia

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Solar energy may not be a viable solution for much of Africa. Taking Ghana as an example, solar electricity costs 40 cents to 50 cents a kilowatt hour, while meanwhile Ghanaians pay just 5 cents to 10 cents for electricity from conventional sources. Wind is likewise not a viable option.

That forced Ghana to consider a more imaginative set of choices, among them, sewage. Dumping its payloads into a warm and massive vat that will skim lipids – fat – off the top to provide biodiesel.

But there are more sanitary ways to make a megawatt in Ghana. Kwame Tufor came home from Florida to liquefy Ghana’s coconut husks, cocoa pods, and palm nut shells into gas. But you’d need a lot of coconuts to turn a profit that way. Local farmers could provide their nut shells and cocoa pods for his incinerator.

But he and a business partner are eyeing an old paper farm the size of Brooklyn. Sometime between one 1970s coup and another, the owner ran out of money and political favor, abandoning acres of trees that were meant to be mulched into notepads 35 years ago. Mr. Tufor intends to saw those trees down, replant them, then burn the timber and compress the smoke into a biofuel using dated World War II technology that’s been dusted off by developing world power plants.

At least 10 plants in China now gasify coal this way, while farmers in the Philippines run irrigation pumps on generators that gasify rice husks.

Young donors access non-profit sites via Smartphones

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To reach people in their 20s and early 30s, the most important thing nonprofits can do is to make sure their Web sites are easy to read on a mobile device and not overly cluttered, says a survey of more than 6,500 young people released today.

About 65 percent of respondents said they liked to learn about a nonprofit through its Web site, compared with 55 percent who said they turned to social networks, e-mail newsletters (47 percent), print (18 percent), and face-to-face conversations (17 percent).

When young adults turn to a Web site, the “about us” section draws their attention most. Nearly nine in 10 young people said that’s where they go to seek information, according to the survey, conducted by two consulting companies, Achieve and Johnson, Grossnickle, and Associates.

Other information young people want on a Web site:
• 43 percent said they look for proof about the ways their donations make a difference.
• 41 percent seek volunteer opportunities.
• 41 percent look for an events calendar.
• 30 percent gravitate to videos and photos.

Beyond the information on a Web site, young people also scrutinize the design. “Even if you are a small, scrappy nonprofit, your Web site should look professional,” said one young person quoted anonymously in a report on the survey results. “I judge the character of the organization with its presence on the Web.”

Among the study’s other findings:
• Two-thirds of young people said they interacted with a nonprofit on Facebook, and 92 percent of those respondents “liked” at least one nonprofit’s Facebook page. Three-fourths of people said they would be willing to share an interesting nonprofit event on Facebook.
• About 28 percent of young people said they have interacted with a nonprofit on Twitter. Focus-group members said Twitter is especially useful when nonprofit leaders have their own personal accounts and share their views.

Promoting equity for all peoples of the world

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Brief of an article by Jeff Raike, chief executive officer of the Bill & Melinda Gates Foundation:

One of the questions I’m often asked as CEO of the Bill and Melinda Gates Foundation is what issues we invest in and why. To answer, it helps to understand a little about the foundation’s history.

More than a decade ago, Bill and Melinda read a newspaper article about the millions of children dying in poor countries from diseases that most people in the United States don’t have to worry about. One disease in particular—rotavirus—caught their attention, and it was killing half a million children a year. They’d never even heard of rotavirus. They thought it might be a typo.

Rotavirus, they learned, is one of the main causes of diarrhea. When kids in the United States get diarrhea, their doctors give them electrolytes. When kids in the developing world get it, they often die.

Reading this helped Bill and Melinda make two decisions: That they would start a foundation right away and that their giving would focus on solving some of the world’s greatest inequities.

The Gates Foundation is guided by the belief that all lives—no matter where they are being led—have equal value.  Whether a child is born in New York or New Delhi shouldn’t pre-determine their access to health, education, and opportunity. Of course, this belief is simple to say, and much harder to achieve. But our ultimate goal is to reduce the world’s greatest inequities, so every person has the opportunity to live a healthy, productive life.

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Two sides of philanthropy in Africa

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The phrase ‘philanthropy in Africa’ has often tended to conjure up two quite diverse images. On the one hand, there are the well‑intentioned multi‑million dollar budgets of large (often international) foundations. On the other, the well‑established cultures and practice of small grassroots‑contributions and systems of social solidarity at the community level – the significance of which has never really been tapped by the formal development sector.

Across the continent, however, a new generation of local philanthropic institutions is emerging, some seeded with money from outside the continent, others entirely home‑grown – and all seeking to draw on local resources and tap into different forms of wealth, which include cash but also include other, less tangible, forms of social capital such as trust and credibility. These organizations seek to occupy the spaces between large, formal philanthropy and more local level mobilization of communities and their assets, and to build bridges between the two. At the same time they also promote a form of development which is community‑led and community‑owned.

Although the first self‑described ‘community foundations’ may only have been established in Africa in the late 1990s, the idea was not falling on fallow turf but rather offered a more formalized framework for naturally occurring traditions of giving and sharing. Those traditions are well encapsulated in the African philosophy of Ubuntu, defined by Liberian peace activist, Leymah Gbowee, as ‘I am what I am because of who we all are.’ The idea of Ubuntu means that you are known for your generosity. Instead of thinking of ourselves as individuals, separated from one another, we are connected and what anyone does affects the whole world. Generosity spreads outwards in a ripple that benefits the whole of humanity.

Africa is a continent rich with traditions of solidarity and reciprocity. In Kenya, for example, the practice of harambee as a form of local fundraising to cover the costs of funerals, weddings and school fees, was well‑established and drew heavily on a local culture of giving which had a social as well as a financial aspect.6 And in Southern Africa, ilima (coming together to help those without) was a mechanism for the sharing of communal labor for harvesting and house‑building.

A recent report by Jenny Hodgson and Barry Knight, “Mapping a Baseline of African Community Foundations” focuses on this group of institutions. They include community foundations, other types of community philanthropy institutions and local foundations – all operating throughout the African continent.