“Why the charitable deduction needs to be obtainable for all taxpayers,” Giving 100
November 12, 2019; NPR, “Planet Cash”
A report issued earlier this month by US Senator Mike Lee (R-UT) advocates changing the present charitable deduction with both an “above-the-line” charitable tax deduction or a charitable tax credit score that applies equally to all taxpayers, experiences Greg Rosalsky in NPR’s “Planet Cash” publication. Based on the report, both coverage reform might be anticipated to extend US charitable contributions by over $20 billion a 12 months. Readers will recall that NPQ took a coverage place final 12 months in September in help of a common charitable deduction, and since that point the downward development of giving households has continued apace.
Prompting the report partly is a decline in reported charitable giving numbers within the newest Giving USA report. As NPQ famous, the 2018 Giving USA report discovered that particular person giving was $292.09 billion in 2018, which represented a decline of 1.1 p.c (three.four p.c, adjusted for inflation) and adopted years of constant giving will increase.
One attainable driver of this shift is the doubling of the usual deduction within the 2017 tax invoice, which dramatically diminished the variety of taxpayers who itemize their deductions. Alex Brill and Derrick Choe of the American Enterprise Institute contend that donations in 2018 would have been $15.5 billion larger in 2018 if the tax regulation hadn’t modified. In fact, it’s simple to learn an excessive amount of into one 12 months’s numbers. Patrick Rooney of the Lilly Faculty of Philanthropy has cautioned that “it might take two or three years to see the true influence of the tax invoice.”
Much less speculative are the tax regulation’s distributional penalties. IRS knowledge that have been reproduced within the report, which was written by Lee’s coverage advisor, Robert Bellafiore, present that the charitable tax deduction price the US treasury $54.1 billion in 2018, of which $30.5 billion or 56.four p.c, went to the highest one p.c of taxpayers.
This pertains to one other report theme, one which NPQ has highlighted, particularly the long-term decline of the small giver. Whereas the 2017 tax regulation is more likely to exacerbate this tendency, the shift in donations away from small givers started a few years earlier than the 2017 tax regulation took impact. As Bellafiore writes, “whereas whole giving has elevated, the p.c of Individuals giving has decreased, from 66 p.c in 2000 to 56 p.c in 2014. In different phrases, rising donations are coming from a shrinking share of the inhabitants.” Bellafiore additionally notes that particular person giving has changing into a declining share of whole giving, falling from 83 p.c of all giving in 1978 to 68 p.c in 2018, with the share of basis giving being the quickest rising supply.
The report means that Congress undertake certainly one of two potential reforms. One would make the charitable giving deduction “above the road,” which means those that don’t itemize their taxes (and as an alternative take the usual deduction) can nonetheless deduct their charitable contributions to scale back their tax invoice. It is a coverage proposal that NPQ endorsed final 12 months. Based on projections made by Brill and Choe, this coverage change would price the US authorities $25.eight billion a 12 months and would increase $21.5 billion in donations.
The opposite reform the report affords could be to exchange the charitable deduction with a charitable tax credit score. Changing the charitable deduction with a straight 25-percent credit score, obtainable to all taxpayers no matter tax bracket, would scale back federal income by $31.1 billion and enhance charitable giving by $23.three billion, once more in accordance with projections by Brill and Choe.
In fact, giving patterns differ vastly relying on the earnings stage of the giver. The report cites a research carried out by the Lilly Faculty over a decade in the past that discovered a majority of donations from households with incomes beneath $200,000 went to non secular establishments, with “assist assembly primary wants” in second place. Against this, the identical research discovered that arts, training, and well being make up the vast majority of donations for these with incomes of $200,000 and above, with millionaire donors making 65.9 p.c of whole donations in these three classes.
It could be true that Senator Lee, in advocating altering the tax code to encourage extra donations from low-income donors, hopes to encourage extra donations to be made to non secular teams. Regardless, utilizing the tax code to scale back the dominance of megadonors in our sector could be a reform nicely price contemplating.—Steve Dubb