Charitable Tax Deduction
Since 1917, the federal charitable tax deduction has provided a tax deduction for donations made to nonprofit organizations by taxpayers who itemize their tax returns. The charitable deduction is a vital and unique incentive that encourages a selfless act. For every $1 subject to the charitable deduction, communities receive $3 in benefits. It is unlikely the government could find a better way to leverage private investment in community services.
The Tax Cuts and Jobs Act and the Charitable Tax Deduction
The 2017 Tax Cuts and Jobs Act (TCJA) made several changes that hurt the effectiveness of the charitable deduction. In particular, by increasing the standard deduction it greatly reduced the number of taxpayers who itemize and therefore have access to the charitable deduction.
The Tax Policy Center estimated that the number of households claiming the charitable deduction will shrink from about 37 million to about 16 million. We know that the charitable deduction increases giving. Data shows that taxpayers who itemize give at higher rates and make larger gifts than non-itemizers. By restricting the number of taxpayers who can take advantage of the charitable deduction, the TCJA severely limits a crucial element of the tax code that ensures the continued health of the charitable sector.
The TCJA’s changes to the tax code come at a time when the philanthropy and nonprofit sector is already vulnerable. Early data reveal that charitable giving has indeed slowed down in 2018, following the implementation of the TCJA provisions. The 2018 Charitable Giving Report from the Blackbaud Institute for Philanthropic Impact shows that while overall giving increased 1.5 percent in 2018, the increase did not keep up with the 1.9 percent rate of inflation. Additionally, the 1.5 percent increase in giving for 2018 is much smaller than the 4.1 percent increase in giving that Blackbaud reported in 2017 and the combined 9 percent increase since 2016. Particularly concerning, smaller nonprofits with annual fundraising of under $1 million saw a 2.3 percent drop in donations between 2017 and 2018. A report by the Fundraising Effectiveness Project (FEP) found that the total number of charitable donors in 2018 dropped 4.5 percent from 2017 levels, and new donors decreased by a bigger margin of 7.3 percent.
Forum’s Policy Position
Consistent with the Forum’s mission to enhance and expand philanthropy, the Forum supports public policy that encourages charitable giving. The Forum supports the role that tax policy plays in encouraging and structuring gifts that support nonprofit organizations and communities. The Forum board adopted the following position statement in support of the charitable deduction: "The Forum supports making the charitable deduction available to all taxpayers to incentivize giving by every American."
Charitable Giving Coalition
The Forum is an active member of the Charitable Giving Coalition, a national coalition of nonprofit and philanthropic organizations working to protect charitable giving and promote a universal charitable deduction. The Charitable Giving Coalition provides a one-pager with talking points and messaging on the Universal Charitable Deduction.
Learn more and access resources on the Charitable Giving Coalition website.
Legislation in the 116th Congress
- Sponsored by Representative Danny Davis (D-IL), H.R. 1260 would allow non-itemizing taxpayers to fully deduct their charitable gifts.
- Official Short Title: To amend the Internal Revenue Code of 1986 to extend the charitable deduction to all taxpayers regardless of whether a taxpayer itemizes deductions in order to encourage and increase charitable giving.
- Representative Danny Davis is a member of the House Ways and Means Committee, the key tax oversight committee responsible for this type of legislation.
Charitable Giving Tax Deduction Act (H.R. 651)
- Sponsored by Representatives Henry Cuellar (D-TX) and Chris Smith (R-NJ), the bipartisan Charitable Giving Tax Deduction Act in effect is a similar bill to H.R. 1260 and also would extend the charitable deduction to all taxpayers regardless of whether a taxpayer itemizes deductions in order to encourage and increase charitable giving.
- CRS Summary: "This bill modifies the requirements for calculating taxable income to allow a deduction from gross income (above-the-line deduction) for charitable contributions that are allowed as an itemized deduction under current law."
Universal Charitable Giving Act of 2019
- Representative Mark Walker (R-NC) reintroduced the Universal Charitable Giving Act, which would create an above-the-line deduction up to one-third of the new standard deduction – about $4,000 for individuals and $8,000 for married couples.
- Unlike bills from Representatives Davis and Smith, this proposal caps the benefits of the deduction.
Everyday Philanthropist Act (H.R. 4002)
- The Everyday Philanthropist Act was reintroduced by Representative Vern Buchanan (R-FL) and Representative Tom Suozzi (D-NY).
- The bill would create flexible giving accounts to allow workers to set aside a pre-tax payroll deduction, similar to health savings accounts, for the purpose of charitable donations.
- The maximum annual reduction would be $2,700.