The voices of Tax Policy Center's researchers and staff
Even though the House version of the Tax Cuts and Jobs Act (TCJA) preserves the charitable income tax deduction, other income tax provisions of the bill could reduce charitable giving by between $12 billion and $20 billion in 2018, based on new estimates from the Tax Policy Center. A second provision—repeal of the estate tax—could reduce giving by another $4 billion in the longer run.
By nearly doubling the standard deduction and either repealing or scaling back most itemized deductions, the House version of the TCJA would substantially reduce the number of taxpayers who elect to itemize. TPC estimates that fewer than 13 million taxpayers would itemize deductions in 2018 under the House version of the TCJA, down from more than 46 million under current law.
TPC estimates the House bill would significantly reduce the tax incentive to donate, increasing the after-tax price of giving by about 8 percent. Under current law, the average marginal tax benefit of charitable contributions (for both itemizers and non-itemizers) is about 21 percent. That means that every additional $100 in giving across the population reduces income taxes on average by $21. So the after-tax cost of making the donation is just $79 ($100 - $21). The House bill would cut the tax benefit to about 14 percent, raising the after-tax cost of giving to $86 ($100 - $14).
Economists generally agree that the tax deduction increases charitable giving, although the magnitude of the effect is subject to debate. After assuming how much givers would change their behavior in response to those higher taxes, we estimate that individual giving would decline by between $12 and $20 billion in 2018, or between 4 and 6.5 percent. Longer run effects would be similar.
The House bill would also double the estate tax exemption and repeal it entirely beginning in 2025, which reduces the tax incentive for the wealthy to make deductible charitable bequests—both during their lifetimes and at death. Abolishing the estate tax could reduce charitable bequests by between 15 and 30 percent (roughly $4 billion), according to a review of the literature by my colleague Dan Berger.
Bottom line: The House bill may not be very charitable to non-profits.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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