Tax policy changes proposed by Congress and the Trump administration would reduce charitable giving by up to $13.1 billion, according to new research conducted by the Indiana University Lilly Family School of Philanthropy.
The reduction would result from provisions aimed at lowering the top rate and raising the standard deduction, the research suggests.
The researchers also found that adding a charitable deduction for non-itemizing taxpayers to these policy proposals would likely more than offset the loss from the proposals, generating up to $4.8 billion in additional charitable giving.
The study used the 2014 Tax Reform Act introduced by then-House Ways and Means Committee Chairman Dave Camp, a Republican from Michigan, to estimate the potential effects of tax policies on charitable giving. The tax proposal released by the administration last month and the proposal by Republicans in Congress both closely mirror the Camp proposal with respect to reducing the top marginal tax rate and increasing the standard deduction.
The study was commissioned by Independent Sector, a national membership organization of nonprofits, foundations and corporations, with funding from Leadership 18, an organization comprising national human-service nonprofits.
Among the study's key findings:
- Extending the charitable deduction to non-itemizing taxpayers by itself, without other proposals, could generate up to $12.2 billion in additional giving.
- The combination of reducing the top tax rate to 35 percent and increasing the standard deduction has the potential to reduce charitable giving by up to an estimated $13.1 billion.
- The two proposals combined would reduce charitable giving to religious congregations by up to an estimated 4.7 percent and reduce giving to other charitable organizations by up to 4.4 percent.
- Each of the proposals alone (reducing the top tax rate and increasing the standard deduction) would also reduce charitable giving.
- Adding a non-itemizer deduction while lowering the top tax rate to 35 percent and increasing the standard deduction would likely more than offset the amount of charitable giving that would otherwise be lost under those two proposals, generating an estimated additional $4.8 billion in giving on top of the offset.
"When talking about changes in tax policy, it is important that the debate is informed by research. This study provides important information about the expected effects of the proposed tax policy changes and the extension of the charitable deduction to non-itemizers," said Patrick M. Rooney, associate dean for academic affairs and research at the School of Philanthropy.
Much of the research on this topic relies on tax data from itemizing households only, but by using data from the school's Philanthropy Panel Study and the University of Michigan's Panel Study of Income Dynamics, the new study includes giving by both itemizing and non-itemizing households and can isolate the giving behaviors of each.
The IU Philanthropy Panel Study allows the researchers to track behaviors of the same 9,000 households over time and provides more information about the households studied. It uses a much larger and nationally representative cross-section of lower- and middle-class households -- the households that would be the most affected by extending the charitable deduction to non-itemizers.
By combining the researchers' approach to calculating the effect of a change in tax price among different income brackets with PPS data about household giving by non-itemizers, the study is able to estimate the different effects that the proposed policies would have on different income brackets. The use of PPS data also allows researchers to estimate the relative effects that adding a non-itemizer deduction would have on giving to religious congregations as compared to giving to other charities.
You can download the full report online.
Adriene Kalugyer is the manager of public affairs for the Indiana University Lilly Family School of Philanthropy.