Report: U.S. Tax Cuts and Jobs Act Will Lower Charitable Giving

A new analysis from the American Enterprise Institute (AEI) argues that the Tax Cuts and Jobs Act (TCJA) will lead to a 4% reduction in charitable giving, or about $17.2 billion in 2018.

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 deduction.

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.

How This Impacts Mobility

Worldwide ERC® members in the U.S. non-profit sector may be significantly affected by these changes.

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