New research released today by Independent Sector finds that expanding the charitable deduction to all Americans could increase charitable giving by nearly $5 billion annually, while other proposals – such as expanding the standard deduction – could reduce giving by as much as $13 billion. The study, conducted by the Indiana University Lilly Family School of Philanthropy, examined the effect certain tax policies would have on charitable giving and tax revenue. It answers the following questions:
- What are the estimated effects of potential tax policy changes on charitable giving?
- What is the effect on charitable giving in tax reform if the charitable tax deduction is expanded to non-itemizers, in addition to itemizers?
- How do the proposed tax policy changes affect taxpayers’ charitable giving across income levels and by charitable subsector (religious versus non-religious)?
- What are the effects of these policy changes on tax revenue collected by the U.S. Treasury?
The goal of the study was to provide estimates of the potential effects of tax policy changes proposed in the 2014 Tax Reform Act by House Ways and Means Committee Chairman Dave Camp (R-MI) and changes proposed more recently by the Trump White House that would affect charitable giving. The study specifically examined various combinations of three major policy changes: (1) increasing the value of the standard deduction to $11,000 for individuals and $22,000 for married couples (similar to the Trump plan, which would increase the standard deduction to $12,000 for an individual and $24,000 for a married couple), (2) extending the charitable tax deduction to non-itemizers, and (3) decreasing the highest marginal tax rate to 35 percent. The key findings of the research as follows:
- The current proposals, which include an increase in the standard deduction and a decrease in the top marginal tax rate, would decrease charitable giving between $4.9 and $13.1 billion of the total $373 billion by individuals.
- Expanding the charitable deduction to non-itemizers, as a stand-alone provision, would eliminate that $13.1 billion deficit caused by other tax proposals and instead produces a net gain in total giving of up to $4.8 billion.
- Current tax reform proposals would reduce charitable giving to religious organizations by as much as 4.7 percent and giving to other types of charitable organizations by as much as 4.4 percent.
- Extending the charitable deduction to non-itemizers would increase charitable giving by $12.2 billion (4.3 percent) and decrease tax revenue by $13.1 billion (-0.5 percent).
ACR is among several partners in the charitable sector who have been active in urging lawmakers to preserve the full scope and value of the charitable deduction, and consider expanding it to all Americans to avoid the unintended consequences of tax reform listed in this study.
While the results of the study are estimates based on a microeconomic simulation, and thus somewhat imprecise, they do provide well-informed projections on the affect we can expect various tax reform proposals to have, and are valuable data points for nonprofit leaders to describe to lawmakers how these tax proposals will effect charitable giving. The full report released today can be found here.