Playing with Made Up Numbers on the New Charitable Deduction Provisions
On July 7, fellow blogger Darryl K. Jones noted that while charities were excited about the new above-the line-charitable deduction, there was some concern about the impact of the new floor on the corporate charitable deduction and a new ceiling on the individual charitable deduction. Estimates of the amount of lost charitable contributions due to the new floors and ceilings are always somewhat speculative, but Darryl cited some studies that placed that number in the billions. An E&Y study estimated that the 1% floor would reduce giving by $4-5 billion, while the Lilly Family School of Philanthropy estimated that the individual deduction ceiling would range from $2 billion to $8.2 billion. Combining the two, we are looking at roughly $6 billion to $13.2 billion in reduced deduction. In very Very VERY round numbers.
Will the costs of the charitable ceilings and floors be offset by the new above-the-line deduction? Maybe so – again, depending on the somewhat speculative estimates of increased charitable due to the new tax deduction. An article in the July 29th Chronicle of Philanthropy (sub may be required but you can get some free articles with login) cites to an analysis performed on an earlier version of the bill predicting significant increases due to the above-the-line deduction. Capital Policy Analytics estimated that an above-the-line deduction of $500 per person/$1,000 per couple would increase charitable donations by $9 billion – and of course, the deduction that actually is included in OBBBA is double that.
So, is it all – in very round numbers – a wash? I don’t think so. In theory, this would decrease big gifts by wealthy donors and increase small to medium size gifts by better-off-but-not-rich donors – that is, people wealthy enough to make $2,000 in gifts but don’t itemize. If the gain is in the democratization of philanthropy, then the increase in philanthropic participation is a win. That begs a few questions that the Capital Policy Analytics presentation doesn’t seem to address. That analysis assumes that given the changes in charitable giving over the last few years in the face of tax law changes, “charitable donations are sensitive to the tax incentives available to taxpayers.” I tend to guess that tax sensitivity in giving isn’t uniform across taxpayers, which wealthy donors making big gives being the most sensitive, and small donors making small donations the least sensitive. So how will tax changes impact those wealthy enough to give but not wealthy enough to itemize group of donors? I’m not sure but I’m speculating that the tax change will not be as incentivizing. I also – cynically – wonder how many people will take the deduction and not actually make the donation. I mean I’m sure that never happened with the $300 ABL deduction we had for two years.
Finally, I wonder if, on a net basis, whether it isn’t a wash when you factor in fundraising costs? Getting those medium size gifts from medium size donors may be more expensive as a cost matter, so even if the gross donations are the same, the net receipts might be very different.
Speculatively, eww