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, according to a new report.
The study was commissioned by Independent Sector, a group that advocates on behalf of nonprofits, and was conducted by the Lilly Family School of Philanthropy, at Indiana University, in partnership with the Wharton School of Business at the University of Pennsylvania.
The Tax Cuts and Jobs Act, the most significant overhaul of the tax code in decades, reduced the number of households that itemize their income-tax returns. That provision left nonprofits wondering how much their individual donations may be hurt.
The study, “Charitable Giving and Tax Incentives,” also simulated how five proposed changes in tax policy could affect individual charitable giving. The following figures are for 2021 only:
- A “non-itemizer deduction” that extends the charitable deduction to all taxpayers could increase charitable giving by as much as $26.2 billion, an 8.2-percent increase over expected giving under current laws. It is also predicted to increase the number of households that donate to charity by an estimated 7.7 percent. It would reduce overall tax revenue by $21.6 billion.
- A non-itemizer deduction with a $4,000 cap for single filers and an $8,000 cap for joint filers would increase charitable giving by $17.4 billion and raise the number of households donating to charity by nearly 8 percent. It would reduce tax revenue by $19.9 billion.
- A proposal under which an individual would get a 50-percent tax deduction on charitable donations if they amount to less than 1 percent of their annual gross income, and a 100-percent deduction if they exceed 1 percent, would raise charitable giving by $24.9 billion and increase the number of households that donate by 5.2 percent. It would reduce tax revenue by $17.9 billion
- A 25-percent tax credit for charitable donations by non-itemizers would increase charitable giving by up to $36.9 billion and increase the number of households that donate by 12 percent. It would reduce tax revenue by $33 billion.
- A more complex proposal that would provide a tax deduction of 200 percent for single filers making less than $20,000 a year and joint filers making less than $40,000, along with less generous tax benefits for higher-income taxpayers, would increase charitable giving by $29.2 billion and increase the number of households donating by 9.5 percent. It would reduce federal tax revenue by $24.3 billion.
The report didn’t endorse any specific option for boosting charitable giving.
“We care about a policy that will increase the amount of dollars donated to charities. We care about policies that will increase the number of people donating to charity,” said Allison Grayson, director of policy development and analysis at Independent Sector. She added, “We also care about the cost it incurs to the government.”
Total giving in the United States was $410 billion in 2017, according to the most recent estimate from Giving USA. Of that total, $286.7 billion was from living individuals, and the rest was from bequests, foundations and corporations.
Correction: An earlier version of this story incorrectly stated the time frame for the figures associated with five proposals for increasing charitable giving. The figures cited are for 2021 only. The story also mistakenly said that the first proposal would increase charitable giving by 7 percent; the correct figure is 8.2 percent.
