While the 2017 Tax Cuts and Jobs Act (TCJA) was heralded as a Republican legislative victory, the law has the potential to deter charitable giving by increasing the cost of charitable giving, therefore slowing donations. This law – which nearly doubles the standard deduction – enables an estimated 27.3 million more taxpayers to claim the standard deduction and not receive a tax incentive for charitable giving. For millions of Americans, giving to charity just became more expensive.
This from a just-released report from the American Enterprise Institute, a conservative think tank, that predicts charitable giving will be reduced by $17.2 billion within a static model, or $16.3 billion assuming modest growth. To offset the decline in giving, the report author explores several legislative options, including an above-the-line deduction and a tax credit.
Key takeaways include:
- Even among the highest income taxpayers – those in the 95th percentile of AGI and above, where relatively few taxpayers will switch from itemizing to the standard deduction – roughly 60% of the estimated decline in giving is attributable to the increase in the standard deduction.
- Without repealing any of the recent reforms, additional tax policy changes could reverse the impact of the Tax Cuts and Jobs Act on charitable giving. Two options – an above-the-line deduction and a flat-rate, nonrefundable 25 percent credit – have similar revenue losses and similar aggregate effects on giving, which more than make up for the reduction the TCJA induces.
An above-the-line deduction with a floor would, while modestly more progressive, most closely match the level and distribution of giving under pre-TCJA law.
The full report ia available here.