By Una Osili and Sasha Zarins
The sweeping tax reforms that took effect in 2018 meant fewer Americans could itemize their taxes and benefit from the charitable deduction.
Has that brought about any dramatic changes in charitable giving?
We are the lead researcher and an author of Giving USA 2019: The Annual Report on Philanthropy for the Year 2018, which the Giving USA Foundation releases every year in partnership with the Indiana University Lilly Family School of Philanthropy.
Overall, our team found, total giving was virtually flat in 2018. It increased by 0.7% in current dollars to US$427.71 billion. Adjusted for inflation, that was a 1.7% decline from 2017. If the tax code changes did have an effect on giving in 2018, we see it mainly in giving by individuals: It fell by 3.4 percent in real terms – the largest decline since the Great Recession ended.
Tax changes
According to IRS data, more than 45 million households itemized their deductions in 2016. This number dropped by an estimated 16 to 20 million in 2018, according to the congressional Joint Committee on Taxation – to about 12% of all taxpaying households.
Even with that sharp decline, however, individual giving remained the largest source of charitable dollars. Accounting for 68% of all donations, it far exceeded the next largest source – foundations, which composed 18% of the total.
At the same time, the share of all giving from individuals declined from 70% in 2017 and an estimated high of 85% in 1979. It marked the first time individual giving fell below 70% since 1954. The rest of the country’s donations came from bequests from the estates of deceased individuals and gifts from corporations.
However, it is too soon to tell what the full extent of the ramifications of the changes to tax policy will be.
Some Americans may not have completely understood how the changes would affect their giving before filing taxes in 2018. Therefore, they may not have changed how they donated in 2018, yet they might make adjustments in 2019 and beyond.
Stock market
The economy was relatively strong in 2018, buoyed by many of the economic factors that can boost giving, such as rising disposable personal income levels and GDP growth.
But the stock market’s performance also influences how much Americans give to charity, as economists John List and Yana Gallen have found. And the S&P 500 stock market index fell 4.4% in 2018. This drop likely made an impact on giving in ways that are difficult to separate from the effects of the tax changes.
Generational changes
Despite declining from 2017, overall giving to religious congregations, at $125 billion, and giving to educational causes including higher education, at nearly $60 billion, continued to exceed all other types of charitable giving in 2018.
Organizations dedicated to environmental issues and animals, as well as international affairs organizations, account for a smaller share of overall charitable giving, but they were the only categories to see any growth in 2018. Giving to international affairs groups grew 7% adjusted for inflation, comprising 5% of all donations. Giving to environmental and animal organizations rose 1.2% adjusted for inflation.
We believe that the uptick in giving to these causes may reflect generational changes. Environmental and international causes tend to receive more support from younger Americans than older adults.
These trends might indicate that there could be some additional challenges ahead for philanthropy beyond the tax code changes. Older Americans have traditionally played an outsized role in American giving, increasing the amounts donated as they age.
Several scholars have emphasized that the lasting impact of the Great Recession and other economic factors could change that trajectory for millennials. Taken together with how each generation’s unique experiences and resulting values and beliefs shape distinct philanthropic identities, today’s younger adults may give differently than earlier generations as they gain economic and financial stability.
Una Osili is Professor, Economics and Philanthropic Studies; Associate Dean for Research and International Programs, Lilly Family School of Philanthropy, IUPUI. Sasha Zarins, Project Coordinator, Doctoral Student, Lilly Family School of Philanthropy, IUPUI
This article is republished from The Conversation under a Creative Commons license.
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As governmental support for the critical work of the third sector declines, it is critical that charitable contributions will fill the void created. Accordingly, need to know how public policy influences charitable giving. Thank you for this evidence-based peak under the tent in this regard. Please continue to study and publish findings!
As a Certified Public Accountant I recommended to many of my clients that would no longer be able to itemize their deductions under the new tax law to accelerate their 2018 donations to 2017. Many CPA’s were making the same recommendation. It does not answer question of what will happen long term, but the 2017 increase and 2018 decrease in donations by individuals is not a surprise to me and should not be to anyone else.