The proportion of individuals who claimed charitable deductions on their taxes fell to 8.5 percent in 2018, compared with 24 percent in 2017, according to a new study.
The decline is closely tied to a reduction in the share of people who itemize their taxes — to 10 percent from 30 percent — as a result of major changes in federal tax law in 2017.
The new figures make it clear that a large majority of the people who itemize their taxes continue to donate to charity. What remains unknown is the impact of the new tax law — which roughly doubled the standard deduction — on the charitable giving of the now much larger number of people who don’t itemize their taxes.
The report shows that the law had an outsize impact on lower- and middle-income taxpayers, reducing the number of those who get a tax break for charitable giving and other deductions. The number of people whose annual income is $100,000 to $200,000 and who itemize fell by 65 percent. The drop was even bigger for people in lower income groups. Meanwhile, the number of people making $200,000 to $500,000 who itemize fell by only 45 percent.
James Andreoni, a professor of economics at the University of California at San Diego, one of the authors of the new analysis, said the study should be worrisome to nonprofits that depend on giving from lower-income individuals.
“For the nonprofits themselves, yeah, I think they should panic,” he said. “They should really try to hold on the big givers they have that are low-income. They’re the ones who will have this gut reaction and just quit giving for a while.”
Andreoni wrote the report with Jon Durnford, president of the consulting firm DataLake Nonprofit Research, in San Diego. It is based on the IRS’s “Late May Filing Season Statistics,” released last month. The data include information collected from more than 134 million individual 2018 tax returns processed as of May 2019. While it’s not an analysis of every tax return, most of them have been processed by that time.
The IRS data show that $93 billion in charitable donations was claimed as deductions on individuals’ 2018 taxes, a decline of 37 percent compared with $147.3 billion at the same time last year. That decline wasn’t nearly as steep as the 66-percent drop in the number of people who itemize, which may indicate that many of those who no longer itemize their taxes were not big charitable givers anyway.
Hot Topic
The impact of the tax law on charitable giving has been a hot topic, with hard data just starting to flow in. The latest Giving USA report estimated a 1.7-percent drop in charitable giving last year. While Giving USA didn’t attribute that to the tax law, which took effect for the 2018 tax year, many experts said a decline in charitable giving during a year when the economy ran hot was a deeply troubling signal for nonprofits.
A recent report commissioned by Independent Sector, a group that advocates on behalf of nonprofits, estimated that the 2017 federal tax overhaul could cut the number of households donating to charity by 2.6 million per year and reduce charitable giving by up to $19.1 billion per year through 2025.
Some observers, however, challenge the argument that the tax law has had a big impact on charitable giving. Leslie Lenkowsky, a professor at Indiana University’s Lilly Family School of Philanthropy, says that nonprofits’ concerns about the changes in the tax law are overblown, and that the impact of the tax cut is still unknown.
“Remember that charitable deductions are not the same as charitable giving,” he says. “This is not a study of how the tax bill will affect charitable giving. It’s a study of how the tax bill affected itemization.”
It’s a point conceded by Andreoni. In his and Durnford’s report, he wrote that the IRS data do not indicate how charitable giving as a whole has been affected by the tax changes. Many people give to charity without considering the tax benefits.
“There is a lot of research on the subsidy that’s applied by the charitable deduction and how it affects the amount of money people give,” says Andreoni in an interview. “There are some disagreements about what those numbers mean, and this data is not going to settle that.”
