Congress Should Allow Everyone to Get a Tax Break for Giving to Charity

By Alejandra Castillo, Susan Dreyfus, Brian Gallagher, James Firman, Gail McGovern, and Jonathan Reckford
Nonprofit CEOs

Chronicle photo by Julia Schmalz

After nearly two years of data, the jury is in. Charitable giving is down, and analysts agree that the removal of the charitable-giving tax deduction for millions of Americans in the 2017 tax law is a significant factor in that drop.

Which charities are among those hardest hit? Nonprofit, community-based human-service organizations that strengthen families and communities; provide disaster relief; help children succeed in school; provide families with access to affordable health care, daycare, and job training; and help all Americans achieve well-being have seen a decline in charitable giving since the tax law was passed.

As leaders of organizations that collectively serve more than 87 million Americans, we believe that American altruism is still strong and that the spirit of giving is synonymous with the American spirit.

But there can be no doubt that the tax law has had the unintended consequence of removing an incentive to give more that has resulted in the loss of billions of dollars in annual charitable giving.

Before passage of the tax bill, several institutions, including Indiana University Center on Philanthropy, the Tax Policy Center, and the American Enterprise Institute, all projected giving to drop an estimated 5 percent, from between $13 billion and $21 billion per year, as a result of the new tax law. Those projections have proved to be prescient.

A June report from Giving USA found that 2018 donations from individuals (which represent 70 percent of all giving) were down an inflation-adjusted 3.4 percent compared with 2017. The Fundraising Effectiveness Project third-quarter 2019 report shows a 4.6 percent net drop in fundraising revenue compared with 2018. In fact, according to a new study, the proportion of individuals who claimed charitable deductions on their taxes fell to 8.5 percent in 2018, compared with 24 percent in 2017.

Influence of Tax Policy

History has proven that tax law influences behavior. This precept of tax policy is universally accepted across the political and ideological spectrum, expressed in common-sense statements like “if you tax something, you get less of it.”

While we know that many people give to their favorite cause or their place of worship for altruistic reasons as well, there is no doubt that removal of the tax incentive had impact.

In 2017, charities were told by the U.S. administration and some in Congress not to worry; they were advised to look at the positive correlation between economic growth and giving. The government officials suggested that this historical correlation would pre-empt the basic rules of tax policy. Unfortunately, while GDP growth has been 2 percent or higher for all but one of the seven quarters since the tax law went into effect, charitable giving by individuals has been down for all but one of those seven quarters.

The recent drops in giving are compounding a pre-existing challenge facing human-services community-based organizations. For more than a decade, the percentage of Americans who give has been gradually decreasing, partially as a result of the great recession. Charities have increasingly relied on a small number of wealthy donors, who tend to give to a small cross section of charities.

The American spirit to give in support of our faith-based institutions, our neighbors, and our communities should be accessible to all Americans, not just the wealthy. That is why calls are growing for a “universal tax deduction” that would level the playing field for all taxpayers. In fact, in March 2017, a national poll commissioned by Independent Sector found that 75 percent of American voters support a universal tax deduction, which would expand the charitable deduction to taxpayers who do not itemize on their taxes.

New Legislation

Fortunately, Congress has increasingly become aware of the need for action. In November Republicans on the Joint Economic Committee under Chairman Sen. Mike Lee, Republican of Utah, released research that recommends an overhaul of the charitable deduction.

Meanwhile, two Democratic members of Congress, Danny Davis of Illinois, and Henry Cuellar of Texas, along with Republican Representatives Chris Smith of New Jersey and Mark Walker of North Carolina, and Senator James Lankford, Republican of Oklahoma, have also introduced versions of a universal tax-deduction bill that would allow anyone who donates to deduct that donation — regardless of the person’s income. We strongly support these efforts.

By allowing anyone who gives to charity the ability to do so without incurring a tax burden, we will create a fairer and more equitable tax system for all. Passing a universal tax deduction preserves what is among the best elements of our tax code — an incentive to give that is engrained in the American spirit and that fuels American generosity, which has helped grow our economy, strengthen our communities, and ensure all people can reach their fullest potential.

The authors are all CEOs of their organizations: Alejandra Y. Castillo heads YWCA USA. Susan N. Dreyfus is at Alliance for Strong Families and Communities, James Firman is at the National Council on Aging, Brian Gallagher is at United Way Worldwide, Gail J. McGovern is at the American Red Cross, and Jonathan T.M. Reckford is at Habitat for Humanity International. Their organizations all belong to Leadership 18, a coalition of nonprofit human-service organizations that collectively serve 87 million people nationwide. Dreyfus chairs Leadership 18, and Gallagher is standing vice chair.