Proposed Tax Reforms Would Reduce Charitable Giving, Study Finds

Current tax reforms proposed by Republican lawmakers and the Trump administration would reduce charitable giving by as much as $13.1 billion, a study commissioned by Independent Sector and conducted by the Indiana University Lilly Family School of Philanthropy finds.

The report, Tax Policy and Charitable Giving (52 pages, PDF), estimates that current proposals to lower the top marginal tax rate and raise the standard deduction would reduce charitable giving by between 1.7 percent ($4.9 billion) and 4.6 percent ($13.1 billion), with giving to religious institutions falling 4.7 percent, compared with a 4.4 percent decline in giving to other types of charities. According to the report, federal tax revenues also would decline by some 3 percent (between $88.2 billion and $88.7 billion).

The White House blueprint and the House Republican proposal would double the standard deduction for individuals to $12,600 and $12,000, respectively ($24,000 for joint filers under both proposals) and reduce the number of tax brackets from the current seven to three under the White House plan (10 percent, 25 percent, and 35 percent) and four under the House plan (0 percent, 12 percent, 25 percent, and 33 percent).

Under both proposals, the charitable deduction would only be available to individuals who itemize their deductions. However, if the current proposals were to incorporate an expanded charitable deduction for all taxpayers, including people who do not itemize, charitable giving would increase by between by $1.1 billion (0.4 percent) and $4.8 billion (1.7 percent), while federal tax revenues would fall some $100 billion (3.8 percent).

"On the face of it, the tax reform blueprint from the administration and Republican lawmakers appears to preserve the charitable tax deduction, which is good news," noted Susan Dreyfus, chair of Leadership 18 and president and CEO of the Alliance for Strong Families and Communities. "However, there are unintended consequence of reducing the incentive for charitable giving, according to this new research. Fortunately, this study provides data that indicates there is a simple fix. By making the charitable deduction available to all, including non-itemizers, the incentive to give will be preserved."

"New Research Finds Tax Reform Proposals Would Significantly Decrease Charitable Giving." Independent Sector Press Release 05/18/2017. "Tax Policy and Charitable Giving." Indiana University Lilly Family School of Philanthropy Report 05/18/2017.