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Policy Issue: Universal Charitable Deduction

Publication date: 
October, 2022

Universal Charitable Deduction

Background

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 2017 Tax Cuts and Jobs Act made several changes that hurt the effectiveness of the charitable deduction. By increasing the standard deduction, it greatly reduced the number of taxpayers who itemize and therefore have access to the charitable deduction. Under current law, about 88% of taxpayers don’t itemize, meaning only about 12% of taxpayers have a tax incentive to increase their donations to important causes.

Legislation

In March 2020, Congress enacted a $300 charitable deduction for cash gifts from nonitemizers for 2020 and in December 2020 extended its availability through 2021 and increased the cap to $600 for joint filers. Thereafter, the number of small gifts – especially those of $300 and $600 – saw a significant increase. Data from the Fundraising Effectiveness Project (FEP) shows an increase of 7.5 percent in individual gifts of $300 in both 2020 and 2021, compared to 2019. Additionally, gifts of $600 increased 5 percent in 2021, compared to 2019, the exact amount of the universal charitable deduction for joint filers that expired at the end of 2021.

Congress should enact the Universal Giving Pandemic Response and Recovery Act (S. 618, H.R. 1704). To ensure all taxpayers continue to have access to giving incentives, Congress should renew and expand the universal charitable deduction. The legislation is led by a bipartisan, bicameral group of lawmakers, including Sens. James Lankford (R-OK), Chris Coons (D-DE), Mike Lee (R-UT), Jeanne Shaheen (D-NH), Tim Scott (R-SC), Amy Klobuchar (D-MN), Susan Collins (R-ME), Catherine Cortez Masto (D-NV), and Reps. Chris Pappas (D-NH) and Jackie Walorski (R-IN).

Talking Points

  • Charitable giving works and is good tax policy. Generous Americans gave almost $485 billion to charity in 2021. Charitable dollars are essential to maintaining a healthy civil society, vital to both nonprofit charities and local governments that depend on these resources to achieve their critical missions. The charitable deduction is good tax policy – a simple calculation shows that those in need receive at least $2.50 in benefit for every $1 of tax benefit. This is an impressive return on investment.
  • Small charitable gifts increased after the enactment of the temporary universal charitable deduction. In March 2020, Congress enacted a $300 charitable deduction for cash gifts from nonitemizers for 2020 and in December 2020 extended its availability through 2021 and increased the cap to $600 for joint filers. Thereafter, the amount of small gifts – especially those of $300 and $600 – saw a significant increase.
  • While gifts of smaller amounts increased in 2020 and 2021, overall giving trends did not keep pace with inflation. According to the 2022 Giving USA report, total giving reached $484.85 billion in 2021, but when adjusted for inflation, this was a 0.7 percent decrease compared to 2020. Individual giving also remained flat when adjusted for inflation, totaling $326.87 billion.
  • Include personal anecdotes and data from your members: Collect data and stories from your members about how decrease in donors and in donations have negatively impacted their work and the communities that they serve.