By paring or eliminating tax incentives for charitable giving, the 2017 Tax Cuts and Jobs Act signed into law in December could reduce individual giving this year by as much as $17.2 billion, a report from the American Enterprise Institute finds.
The report, Charitable Giving and the Tax Cuts and Jobs Act (9 pages, PDF), projects a drop in giving of $17.2 billion (4 percent) under a static model and of $16.3 billion under a dynamic model that assumes a modest boost in economic growth as a result of the cuts, which nearly doubled the standard deduction and lowered marginal rates. The study found that 83 percent of the decline ($14.2 billion, or -3.3 percent) would be driven by an estimated 27.3 million tax filers switching from itemizing deductions on their returns to claiming the newly doubled standard deduction. According to AEI, itemizers, across all income levels, consistently give a larger share of their adjusted gross income (AGI) to charity than non-itemizers — 4.7 percent vs. 2 percent of AGI for those making up to $50,000; 4 percent vs. 1.7 percent for those making between $50,001 and $100,000; 3.1 percent vs. 1.3 percent for those making between $100,001 and $200,000; and 3.3 percent vs. 1.4 percent for those making at least $200,001.
The report suggests that the remaining $3 billion in "lost" giving will result from lower marginal rates for high-income earners. Nearly all the 19.9 million filers who choose to itemize their deductions will face a slightly higher "cost" per dollar donated as a result of the lower marginal rates, with a larger adverse effect on giving at higher income levels.
The report highlights two tax policy changes that could reverse the impact on giving without repealing any of the new tax cuts — an above-the-line or "universal" deduction and a flat-rate, non-refundable 25 percent credit for charitable donations. According to the analysis, an above-the-line deduction that extends the charitable deduction to non-itemizers or a 25 percent tax credit — with or without a floor of $500 for single filers and $1,000 for married couples filing jointly — would yield an increase in giving ranging from $19.1 billion to $23.3 billion, more than offsetting the reduction in giving as a result of the tax cuts.