Taxpayers living in high-tax states whose deductions are limited to $10,000 for state and local taxes are not the only ones that won’t benefit much if at all from the new tax law. Charities will also suffer.
According to the American Enterprise Institute, a conservative Washington think tank, charities will collect $16.3 billion to $17.2 billion less in donations this year as a result of the new law.
(Related: Highlighting Tax Law Changes in One Page)
An estimated 27.3 million more taxpayers are expected to take the standard deduction, which was doubled in the new tax bill, instead of itemizing, according to a new AEI report written by research fellow Alex Brill and research assistant Derrick Choe. Without the ability to deduct those donations, they will become more expensive.
In addition, taxpayers will have less incentive to itemize because their marginal tax rates are lower.
AEI estimates that 83% of the $17.2 billion expected decline in charitable donations — on a static basis, equal to a 4% decline in giving — is due to the doubling of the standard deduction; the remaining 17% is due primarily to the lower marginal tax rates for high-income taxpayers. (The $16.3 billion decline in contributions, at the lower end of AEI’s expectations, is a result of a dynamic analysis that assumes slightly stronger economic growth due to the new tax law.)
The new tax law nearly doubles the standard deduction for married couples filing jointly from $12,700 to $24,000 with an additional $2,600 for couples 65 or older (that was previously $12,700) and eliminates personal exemptions.
The law also lowers the top marginal tax rate from 39.6% to 37% and raises the adjusted gross income subject to the top tax rate from $480,050 to $600,000 for married couples filing jointly.