Independent Sector, a national partner of CMF, has released a new report which provides an analysis on the potential impact of the 2017 tax reform on the charitable giving landscape, along with five specific policy options to potentially increase charitable dollars and the number of American household donors. 

The report, Charitable Giving and Tax Incentives, highlights a key trend in charitable giving that CMF shared with lawmakers at Foundations on the Hill (FOTH): While there was an increase in charitable giving in 2017, the number of donors has been on the decline. 

The report states, “Recent trends, including the decreasing share of American households donating to nonprofits and the passage of the 2017 Tax Cuts and Jobs Act (TCJA) have led to concerns among nonprofit organizations that the overall increases in charitable giving might not be sustainable and that the increasing concentration of giving among high-income households could lead to greater inequality.” 

The effects on charitable giving from the TCJA: 

• The TCJA doubled the standard deduction. It is projected that 88 percent of taxpayers will take the standard deduction in the 2018 tax year.  

• The report shares that 28.5 million households will no longer benefit from the charitable deduction.  

• Researchers predict that under the current TCJA, 88.6 million households will donate $342 billion in 2021, lower than what would have been donated in charitable dollars prior to the TCJA.  

The report provides five policy options that are poised to offset the trend of declining donors and potential decrease in charitable giving stemming from the TCJA. 

Highlights include: 

• Non-itemizer deduction: This would extend a universal charitable deduction to both itemizers and non-itemizers. The policy is estimated to increase charitable giving donations by $26.2 billion or 7.7 percent and increase the number of donor households by 7.3 million or 8.2 percent. Example of current policy under consideration: The Charitable Giving Tax Deduction Act (HR 651).  

• Non-itemizer deduction with a $4,000/$8,000 cap: This is similar to the previous policy but adds a cap of $4,000 for single filers and $8,000 for married couples filing jointly. The report says that including a cap is a common proposal to limit the cost to the U.S. Department of the Treasury. The policy is estimated to increase charitable giving dollars by as much as $17.4 billion or 5.1 percent and increase the number of donor households by 7 million or 7.9 percent. Example of current policy under consideration: The Universal Charitable Giving Act (HR 3988 and S2123). 

• Non-itemizer deduction with a modified 1 percent floor: All gifts by non-itemizers would receive a 50 percent deduction and gifts over 1 percent of their adjusted gross income (AGI) would receive the normal deduction. Researchers say this policy could increase taxpayer compliance costs and IRS administrative costs compared to the other options. The policy is estimated to increase charitable giving by $24.9 billion or 7.3 percent and increase the number of donor households by 4.6 million or 5.2 percent. However, it would reduce the Treasury’s revenue by up to $17.9 billion.  

• Non-refundable credit for non-itemizers, 25 percent rate: This policy would provide a 25 percent non-refundable tax credit to non-itemizers in an attempt to ensure all taxpayers receive the same benefit regardless of their marginal tax rate. This policy is estimated to increase charitable giving by $36.9 billion or 10.8 percent and increase the number of donor households by as much as 10.6 million or 12 percent.  

• Enhanced non-itemizer deduction: This would allow single filers earning less than $20,000 to deduct 200 percent of their charitable giving, those earning between $20,000 and $40,000 to deduct 150 percent and those earning more than $40,000 to deduct 100 percent of their charitable giving. The policy is estimated to increase charitable giving by $29.2 billion or 8.5 percent and increase the number of donor households by 8.4 million or 9.5 percent.  

The report states that the policy recommendations focus on non-itemizers because they “primarily include low- and middle-income households” in order to unlock charitable giving for more Americans and not just the wealthy.  

“Not only should nonprofit leaders and advocates as well as policymakers consider the effect of each policy on charitable giving dollars, the number of households that donate, and Treasury revenue but they should consider issues of donor equity and efficiency,” the report states.  

In March while at FOTH, CMF asked lawmakers to support efforts that would incentivize charitable giving, either making it available above the line or through a tax credit. CMF also requested nonpartisan data on the impact of the 2017 Tax Act on charitable giving and jobs in the nonprofit sector. 

The report highlights several components of the TCJA which may negatively impact foundations  beyond charitable giving, such as the estate tax and unrelated business income tax (UBIT). This edition of the Weekly Download includes a deep dive on another piece of legislation connected to the TCJA – the new excise tax on executive compensation.  

Want more? 

Read the full report.