Charitable Giving and Tax Incentives Estimating changes in charitable dollars and number of donors resulting from five policy proposals
The Indiana University Lilly Family School of Philanthropy conducted research and released a report, Charitable Giving and Tax Incentives, analyzing the potential impact of five distinct federal policy ideas meant to increase charitable giving. The potential approaches included caps and floors on giving and tax credits. The report, commissioned byIndependent Sector, found that the proposals could increase donations to nonprofits by between $17.4 billion and $36.9 billion per year. Source: National Council of Nonprofits
Executive Summary from the Report:
Over $400 billion were donated to nonprofits in 2017, a record high. However, despite the increases in charitable dollars, the share of households that donate has been declining: in 2000, 67 percent of American households donated to nonprofits, but in 2014, only 56 percent of American households donated. This trend in decreasing donors pre-dates the passage of the 2017 Tax Cuts and Jobs Act (TCJA), but could be accelerated by the recent policy changes. TCJA significantly changed federal tax policy and these changes are expected to affect charitable giving. Nonprofit leaders, as well as policymakers, have been exploring additional policy proposals to offset the potential negative impact on charitable giving. This study used the Penn Wharton Budget Model to run microsimulations of the effects of five tax policy proposals on charitable giving dollars and the number of households that donate.
The five proposals included:
- A non-itemizer charitable deduction;
- A non-itemizer charitable deduction with a cap for non-itemizers of $4,000 for single filers and $8,000 for married couples filing jointly;
- A non-itemizer charitable deduction with a modified 1 percent floor that allows non-itemizers to deduct 50 percent of the value of their charitable gifts under 1 percent of AGI and a normal deduction for gifts over 1 percent of AGI;
- A non-refundable 25 percent charitable giving tax credit; and
- An enhanced non-itemizer charitable deduction, which provides a higher value deduction for low- and middle-income households: Single filers earning under $20,000 can deduct 200 percent of the value of their charitable donations, single filers earning between $20,000 and $40,000 can deduct 150 percent of their charitable donations, and single filers earning over $40,000 can deduct 100 percent of their charitable donations; and Married couples filing jointly earning below $40,000 can deduct 200 percent of the value of their charitable donations, married couples filing jointly earning between $40,000 and $80,000 can deduct 150 percent of their charitable donations, and married couples filing jointly earning over $80,000 can deduct 100 percent of their charitable donations.
Key findings include:
- Non-refundable 25 percent tax credit: Providing a non-refundable 25% charitable giving tax credit to non-itemizers has the largest positive impact on both the amount of charitable giving dollars ($37 billion) and the number of donor households (10.6 million) of the five policy options analyzed. However, it is also the most “expensive” proposal for United States (U.S.) Treasury revenue (-$33.0 billion).
- Non-itemizer charitable deduction: Extending the charitable deduction to nonitemizers could generate up to $26 billion in additional donations and induce up to 7.3 million additional households to donate in 2021. It would reduce Treasury revenue by up to $22 billion.
- Charitable dollars and Treasury revenue: Four of the five policy proposals bring in more charitable dollars than are lost in Treasury revenue. The non-itemizer deduction 1 Deducting 100 percent is equivalent to the basic charitable deduction. Charitable Giving and Tax Incentives with a $4,000/$8,000 cap is the only proposal that brings in fewer additional charitable dollars than is lost in Treasury revenue.
- Charitable dollars and TCJA effects: Four of the five policy proposals bring in more charitable dollars than were projected to have been lost as a result of TCJA. The nonitemizer deduction with a $4,000/$8,000 cap is the only proposal that brings in fewer additional charitable dollars than is lost as a result of TCJA.
- Number of donor households and TCJA effects: All five proposals bring in more donor households that were expected to be lost as a result of TCJA.
- Non-itemizer deduction with a modified 1 percent floor: The non-itemizer deduction with a modified 1 percent floor is also estimated to have the largest net impact on charitable giving dollars compared to the cost to the Treasury; it could bring in up to $7 billion more in charitable giving than is lost in Treasury revenue. However, it brings in the fewest donor households. •
- Non-itemizer deduction with a $4,000/$8,000 cap: The non-itemizer deduction with a $4,000/$8,000 cap has the largest impact on donors per dollar cost to the Treasury. This policy would bring in up to 352 new donor households per million lost in Treasury revenue.