The Charitable Tax Deduction is a deduction only for taxpayers who itemize tax returns; taxpayers can claim a deduction equal to their tax rate on money donated to charity. However, the new tax law doubled the standard deduction and made other changes that reduced the number of taxpayers who can claim the charitable deduction by more than 20 million people. According to a number of nonpartisan experts, this dramatic drop in the number of donors who can deduct donations will reduce giving in the US by 5%. In particular, for the fourth quintile of American taxpayers (people making between $86,000 to $150,000) the percentage of taxpayers taking the charitable deduction will fall from 39% to 15%. These donors form the foundation of support for basic needs, disaster relief, and human services charities.
2018 charitable sector giving data shows that the predictions were accurate. A recently released GivingUSA report on 2018 giving to charities in the United States includes key findings showing that giving to charities by individuals dropped by an inflation-adjusted 3.4 percent in last year.
The trend is carrying into 2019. In September, the Association of Fundraising Professionals’ Fundraising Effectiveness Project's 2019 Second Quarter Fundraising Report shows a year-to-date decline of 7.3% in charitable giving in 2019 compared to 2018.
Historically, charitable giving has matched or exceeded Gross Domestic Product (GDP) growth. In fact, in 2014-2017, real growth in giving exceeded GDP growth—by as much as 3.3%. However, in 2018 charitable giving fell far below GDP growth of 2.9%, only rising by about 1.6% (please see “Preliminary 2018 Charitable Sector Giving Results” document).
It is widely-accepted among tax policy experts that tax law influences the behavior of taxpayers. This premise applies to charitable giving just like any other activity subject to taxation. While tax policy is not the main reason people give, tax policy influence how much people give. Under current tax law, 90% of taxpayers pay taxes on income that they give away to charities – which has led to reduced giving.
As a matter of fairness, no one should have to pay taxes on donations to charities and Congress should expand the charitable deduction to everyone.
H.R. 1260 introduced by Representatives Danny Davis (D-IL) and the Charitable Giving Tax Deduction Act (H.R. 651) introduced by Representative Chris Smith (R-NJ) and Representative Henry Cuellar (D-TX), both relieve taxpayers from taxes on dollars they donate by allowing “nonitemizers” to take a charitable deduction.
It's time for all American taxpayers to have access to the charitable deduction. Watch the video and take action above.
*Estimate from Indiana University’s Lilly Family School of Philanthropy report “Tax Policy and Charitable Giving Results”. May 2017. https://www.independentsector.org/wp-content/uploads/2017/05/tax-policy-charitable-giving-finalmay2017-1.pdf and Tax Policy Center analysis, January 2018. http://tpc.io/2qUsySt