The new tax bill will eliminate the financial incentive for charitable giving for 21 million taxpayers, according to a new analysis by the Tax Policy Center.
Nonprofit advocates are deeply worried about the impact of the tax law, especially the doubling of the standard deduction for individual taxpayers. As a result of that provision, many Americans will stop itemizing their taxes and will no longer get any tax benefit for charitable giving.
The study says the number of itemizers will plunge from 37 million to about 16 million in 2018.
“Of course, people don’t give to charity just to get a tax deduction. Millions of non-itemizers contributed each year under the old tax law, and many will continue to do so,” writes Howard Gleckman, a senior fellow at the Tax Policy Center, in a blog post about the new study.
The Tax Policy Center is a joint project of the Urban Institute and the Brookings Institution.
The study found that the share of middle-income households claiming the charitable deduction will fall from about 17 percent to 5.5 percent. Some charity observers worry that the tax bill will make charitable giving increasingly an activity mainly of the wealthy.
Uncertainty on Giving Behavior
Nonprofits say other provisions in the tax bill will diminish the incentive for charitable giving, including the reduction in tax rates for both corporations and individuals and the doubling of the estate-tax exemption to $22 million for couples.
The new study found that the changes to individual income taxes will reduce the average marginal tax benefit of charitable giving from 20.7 percent to 15.2 percent, or from about $63 billion to $42 billion.
The Tax Policy Center has previously estimated that the new tax law over all will reduce charitable giving by $12 billion to $20 billion annually.
Leslie Lenkowsky, professor emeritus of public affairs and philanthropic studies at Indiana University, cautioned that there is very little data about the giving behavior of people who don’t itemize. “All these estimates you are seeing are based on what we know about giving behaviors of people who itemize,” he said.
He added, “We now have a situation where people are going from being itemizers to non-itemizers. We don’t know at all how they are going to behave as a result of that change.”
Mr. Lenkowsky, who is a regular Chronicle columnist, also noted that the effects of the tax law could be offset this year by the surging stock market, which could spark a sharp increase in giving, especially by foundations that are seeing big gains in their endowments.
