New Tax Study Anticipates Significant Decrease in Charitable Giving Following Tax Reform

Yet another comprehensive study estimates that giving will fall significantly as a result of the new tax law, the Tax Cuts and Jobs Act, signed into law in late 2017.

The new research, conducted by the American Enterprise Institute (AEI), finds that the new tax law will reduce charitable giving in 2018 by 4% overall, approximately $17.2 billion (from static modeling), or $16.3 billion from dynamic modeling, which assumes modest near-term growth.

Earlier research found similar reductions, with a Lilly Family School of Philanthropy study estimating a drop of about $11-13 billion per year, and a Tax Policy Center report showing a drop in the range of $12-20 billion annually.

“This is the third major study and the first since the new tax law was enacted that shows a substantial drop in giving as a result of the passage and implementation of the Tax Cuts and Job Act,” said Jason Lee, chair of the Charitable Giving Coalition. “There is clearly a growing consensus in the research that the new tax law will reduce giving at a time when demand for charitable programs is increasing. We continue to press Congress to take action now on this growing problem before the impact hits charities this year, leading to serious reductions in services to communities across the country.”

According to the AEI research, the majority (83 percent) of the $17 billion drop in charitable giving will come from the doubling of the standard deduction, causing many taxpayers who itemize now and take advantage of the charitable deduction to give less because the incentive to contribute to charity is gone. The rest of the decrease results from lower marginal tax rates for high-income taxpayers.

In its study, AEI proposes four possible options to reverse the loss in charitable giving: (1) an above-the-line charitable deduction without a floor; (2) an above-the-line charitable deduction with a floor of $500 for individual tax payers and $1,000 for married couples; (3) a flat rate, nonrefundable 25% credit without a floor; and (4) a flat rate, nonrefundable 25% credit with a floor of $500 for individual tax payers and $1,000 for married couples. These various options would result in increased annual charitable giving in the $19-23 billion range and have different impacts on revenue losses.

The Charitable Giving Coalition advocated for the inclusion of a universal charitable deduction without a floor in the Tax Cuts and Jobs Act last year, but the provision was ultimately not included in the final bill.

Currently, bills exist that would implement some form of a universal charitable deduction. Representative Mark Walker (R-NC) and Senator James Lankford (R-OK) have introduced the Universal Charitable Giving Act in the House of Representatives and Senate, respectively. Representatives Chris Smith (R-NJ) and Henry Cuellar (D-TX) have introduced the Charitable Giving Tax Deduction Act, a proposal that mirrors the above-the-line charitable deduction without a floor proposal noted in the AEI study. The coalition continues to strongly urge Congress to enact a universal charitable deduction.

“We’re grateful for the support of those Members of Congress who have demonstrated deep commitment to philanthropy in the U.S.,” said Lee. “We’ll continue to push for a universal charitable deduction and other proposals like those mentioned by the AEI to ensure charities can continue to provide their critically needed services and programs. Charitable contributions and the charitable tax deduction are important for organizations doing vital work in our communities, particularly the small, local charities and congregations already being run on shoe-string budgets that are likely to be hardest-hit by reduced giving.”

The AEI study can be found here.

The Charitable Giving Coalition represents private and community foundations, their grantees and independent charities. Formed in 2009, the coalition is a broad cross-section of nonprofit organizations across the country, including both the nonprofit organizations themselves and the associations and umbrella groups that serve their needs. The coalition is dedicated to preserving the charitable giving incentive that ensures our nation’s charities receive the funds necessary to fulfill their essential philanthropic missions. The coalition provides a unique and unified voice on Capitol Hill on issues affecting the charitable deduction, a voice composed of both direct lobbying and robust grassroots advocacy: www.protectgiving.org, #protectgiving, @protectgiving