Last year Congress passed a comprehensive tax reform for the first time in more than 30 years. The law includes significant provisions that should buoy income growth and thus charitable giving. And the tax deduction for charitable contributions—unlike many others—was preserved. The bill also repealed the “Pease limitation,” which since 1991 had reduced the value of all deductions (including for charity) among high-income taxpayers, and increased the percentage of income that can be deducted for cash donations from 50 to 60 percent. These changes may lead to more giving.
Yet there are also changes which may reduce giving. The standard deduction was roughly doubled, meaning an estimated 21 million Americans who used to itemize their charitable deductions no longer will. While American generosity is not primarily rooted in tax benefits, how the law treats gifts does influence their size and timing. The bill also doubled the threshold at which Americans are required to pay taxes on an estate. There is some concern within the charitable sector that this might reduce the amount left to charity in wills.
It will take years to fully understand the net effects of these changes. Meanwhile the tax treatment of charitable gifts will continue to evolve. If giving does decline, charitable advocates might rally behind a proposal by Representative Mark Walker and Senator James Lankford to provide a charitable deduction even to non-itemizers.
The good news is that Congress, in formulating the most thoroughgoing tax reform in a generation, was very respectful of charitable activity. That is “a testament to the importance of philanthropy,” in the words of tax attorney Alexander Reid. And it indicates that lawmakers are likely to be similarly attentive in the future.