Opinion: The Effect of Extending TCJA on Charitable Contributions

We previously reported on a study asserting that the Tax Cuts and Jobs Act decreased charitable giving by $20 billion annually.  One of the researchers is doubling down in a recent op/ed in the Chronicle of Philanthropy.  Here is an excerpt:

Overall, this deduction lowers tax revenue by tens of billions of dollars every year. To be sure, since giving is socially valuable, the forgone tax dollars might be worth it. Many taxpayers stopped taking advantage of this tax break after President Donald Trump signed the Tax Cuts and Jobs Act into law in late 2017. This law greatly increased the standard deduction. As a result, many people stopped itemizing and started using the standard deduction instead because they could pay less in taxes without itemizing that way. About 30% of taxpayers itemized their tax returns in 2017, making them free to take advantage of the charitable deduction, according to the Internal Revenue Service. But since 2018, only about 10% have been itemizing.  For the 30 million taxpayers who stopped itemizing, the charitable deduction disappeared. They lost an incentive to support many of their favorite causes.

Our study uses data from the University of Michigan’s Panel Study of Income Dynamics, which asks families questions over time, to look at how their giving behavior changed when tax laws changed. This survey lets us see how donations from the same families changed after they stopped using the charitable deduction. This data is available every other year. We studied what happened in 2018, compared with 2016.

We found that Americans who stopped itemizing their tax deductions gave less to charity in 2018 than they otherwise would have. On average, these donors who could use the charitable deduction in 2016 gave nearly $1,000 less in 2018 after losing out on the tax break. All told, we estimate that the 2017 tax package annually reduced charitable giving from individual donors by about $20 billion in the following year from what we would have seen had the bill not become law. That’s roughly 5% of all charitable giving. Overall, charitable giving fell to $523 billion in 2018 from $528 billion a year earlier, measured in inflation-adjusted 2023 dollars, according to the annual report from the Giving USA Foundation, produced in partnership with the Indiana University Lilly Family School of Philanthropy. It fell again in 2019, then rose in 2020 and 2021 before declining in 2022 and 2023, when giving stood at $557 billion.

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darryll k. jones