08 November 2017

Itemized Charitable Deductions Will Fall $95 Billion Under House Tax Reform Bill

by Marques Chavez, Communications Director, Alliance for Charitable Reform

With the markup of the House Republican tax reform bill, H.R. 1, the Tax Cuts and Jobs Act of 2017, in full swing, the Joint Committee on Taxation released a memorandum yesterday that confirmed the very concerns that ACR and our partners in the nonprofit sector have been proclaiming for months.

“For tax year 2018, we estimate that 40.7 million tax payers who itemize will deduct charitable contributions totaling $241.1 billion. Under H.R. 1, we estimate that approximately 9.4 million taxpayers who itemize will deduction charitable contributions totaling $146.3 billion in 2018.”

The memo confirms two things. First, the number of those who will itemize will be greatly reduced, which was also a finding in a study released earlier this year by Indiana University’s (IU) Lilly School of Philanthropy; and second, charitable deductions will fall by $95 billion, or 40 percent, under the current House tax reform bill. To clarify, this does not mean that charitable giving will fall by $95 billion, only that the amount being claimed as a charitable deduction will fall. It confirms the ramifications for the charitable sector that comes with greatly reducing the number of those who will itemize. We have mentioned the $95 billion concern throughout the year, such as here, here and here.

In terms of actual charitable giving lost, the IU study found that as a stand-alone provision, increasing the standard deduction would reduce giving by as much as $13 billion. Charities have rallied behind a universal charitable deduction as a solution to protect against the unintended consequences of an expanded standard deduction documented by JCT and IU. One legislative option available to lawmakers is H.R. 3988, the Universal Charitable Giving Act of 2017, which was authored by Rep. Mark Walker (R-NC) and would expand the charitable deduction to all Americans.

If you may not be familiar with JCT, it is the committee that is involved in every aspect of the legislative process, including development of analysis, preparing official revenue estimates, drafting legislative histories and investigating various aspects of the federal tax system. You can read the full memo here.