The voices of Tax Policy Center's researchers and staff
On March 3, the Treasury Department put out a press release saying that 2018’s charitable giving “appeared largely unchanged from previous years,” despite a “concern that … TCJA [the Tax Cuts and Jobs Act of 2017] reforms would lead to less charitable giving.”
The TCJA had a substantial impact on tax benefits for giving, because it increased the standard deduction and made other changes that made it less likely that taxpayers would itemize deductions on their individual income tax returns. It also lowered individual income tax rates. The open question was and still is: Will the decline in tax subsidies and the higher after-tax cost of giving result in less giving?
The Treasury release is misleading because it is based on the relatively constant amount of nominal giving, before taking inflation and economic growth into account. Constant nominal giving means that real inflation-adjusted giving dropped and the rate of giving did, in fact, decline.
Think of it this way: Any other sector of the economy, such as manufacturing, would be considered in decline if both its real income and share of total output fell over time. So, too, for charities. The formal statistical report from the IRS Statistics of Income Division accurately details, at least from returns of charitable organizations received to date, the amount of their nominal charitable gift receipts in 2017 to 2018. But the statistical report makes no claims that charitable giving remained “unchanged,” though you wouldn’t know it from the Treasury press release.
Amid all the world’s troubles, you may think I am quibbling. I am not naïve: Politicians, and even political appointees, spin the facts. But it is troubling when releases imply the Treasury Department, writ large, including its public servants, comes to misleading conclusions. No matter which political party is in power, the long-run trust of the public in the integrity of its government institutions is an asset vital to the nation’s well-being.
A misleading conclusion also put civil servants and well-meaning political appointees in a bind, even if they do nothing more than type up and distribute bad information. It encourages sycophancy among both career staff and political appointees, whose careers then become tied to their loyalty to the administration in power, not the American public. Think about it: somebody had to write the words of this release.
What really happened to charitable giving in 2018? When Congress passed the TCJA, TPC projected that giving as a share of income would decline by roughly 4 to 5.5 percentage points. Why? The government subsidy to the average dollar of giving declined by a bit less than 7 percentage points.
Treasury estimated that adjusted gross income rose by between 5 and 6 percentage points from 2017 to 2018. Thus, for people’s rate of giving to remain constant, total giving would have had to increase by roughly the same percentage. But it did not.
While the limited data released available so far are consistent with TPC’s interpretation, the jury still is out on the overall effects of the TCJA on charitable giving. We’ll only know better when we get a longer-run picture. Sadly, Treasury seems more focused on spin than objective analysis.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.