Tax Reform Proposals Could Cost Nonprofits

The current tax reform proposals could hurt charitable giving, unless the charitable donation credit extends to people who don't itemize their deductions.

According to a new report commissioned by Independent Sector, the tax reforms being proposed by Republican lawmakers and the Trump administration could decrease charitable giving by up to $13.1 billion.

The report, Tax Policy and Charitable Giving, estimates that current proposals to lower the top marginal tax rate and raise the standard deduction could reduce charitable giving by between $4.9 billion and $13.1 billion. Giving to religious institutions would fall 4.7 percent, and giving to other types of charities would decline by 4.4 percent.

The study used the 2014 Tax Reform Act as the basis for its research, as the Trump administration’s proposal very closely mirrors that act. The reforms include reducing the top marginal tax rate and increasing the standard deduction.

Currently, the White House proposal and the House Republican proposal for tax reform doesn’t include making the charitable deduction to non-itemizers. But if it included extending the charitable deduction to all taxpayers, including those who don’t itemize their deductions, that could make up for some of the losses provided by tax reductions for the wealthiest Americans—and therefore, the loss of incentive to donate.

If the reforms were to include an expanded charitable deduction, charitable revenue could increase by between $1.1 billion and $4.8 billion.

“On the face of it, the tax reform blueprint from the Administration and Republican lawmakers appears to preserve the charitable tax deduction, which is good news,” said Susan Dreyfus, president and CEO of the Alliance for Strong Families and Communities. “However, there are unintended consequences of reducing the incentive for charitable giving, according to this new research.”

Fortunately, Dreyfuss added, there is a simple fix: Making the charitable deduction to all, including non-itemizers, the incentive to give will be preserved even in the face of a reduction of the top marginal tax rate.

“We took the position last year that expanding the charitable deduction to 100 percent of taxpayers would encourage all Americans to give more and ensure that more dollars were being put back into communities for local, effective solutions,” said Daniel J. Cardinali, president and CEO of Independent Sector. “We are encouraged that the research shows that expanding the deduction has the potential to more than offset the estimated loss in charitable dollars resulting from current reform proposals. Those charitable dollars improve lives and the natural world for all Americans.”

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