The TCJA retained the itemized
deduction for gifts to charity, and does not directly affect such giving.
However, it eliminates all deductions for state and local taxes that exceed an
aggregate of $10,000, limits the deduction for mortgage interest to interest on
loans not exceeding $750,000 and eliminates the separate deduction for home
equity debt, and eliminates “miscellaneous itemized deductions,” thus shrinking
the itemized deductions available to taxpayers. At the same time, it roughly
doubles the standard deduction that may be taken in lieu of itemizing. It also
reduced marginal tax rates, which reduces the tax value of any particular
The combination of changes has
been estimated by other analysts to reduce the number of taxpayers who itemize
deductions from some 46.5 million in 2017 to 18 million or less in 2018.
These changes have led to much
speculation as to what will happen to charitable contributions from those
taxpayers who no longer itemize.
Related: Repayments Under U.S. Payback Agreements No Longer Deductible
The new report analyzes
charitable giving prior to the TCJA by itemizers and non-itemizers in different
wage brackets. According to the authors, based on 2017 data taxpayers who do
not itemize and who earn up to $50,000 contribute roughly 2% of their after-tax
income to charity, while taxpayers in that income group who itemize contribute
about 4.7%. Similarly, taxpayers earning $200,000 or more per year who itemize
contribute 3.3% of after-tax income, while those who do not itemize contribute
1.4%. If those numbers hold true in 2018, they will result in the large
reduction in charitable giving noted above.
The Institute proposes that
charitable giving be moved to an “above the line” deduction, or that taxpayers
receive a 25% tax credit rather than an itemized deduction.
Worldwide ERC® members in the U.S. non-profit sector may be significantly
affected by these changes.