Tax Overhaul Could Mean $19 Billion Less in Donations Each Year: Study

The researchers found that all five policies could bring in more donor households, and four could generate more charitable dollars than would be lost because of the tax changes:

1. Deduction identical to itemizers’ tax incentive
2. Deduction with a cap in which gifts over $4,000/$8,000 do not receive an incentive
3. Deduction with a modified 1% floor, in which donors can deduct half the value of a gift below 1% of their income and the full amount if it is above 1%
4. Nonrefundable 25% charitable giving tax credit
5. Enhanced deduction that provides additional incentives for low- and middle-income taxpayers

According to the study, a nonrefundable 25% charitable giving tax credit to non-itemizers would have the biggest positive effect on both the amount donated ($37 billion) and the number of donor households (10.6 million) of the five policy options analyzed, but would cost the U.S. Treasury $33 billion in lost revenue.

Extending the charitable deduction to non-itemizers could generate up to $26 billion in additional donations and induce up to 7.3 million additional households to donate in 2021, the study found. This would reduce Treasury revenue by up to $22 billion.

Researchers estimated that the non-itemizer deduction with a modified 1% floor would also have the largest net effect on charitable giving dollars compared with the cost to the Treasury, bringing in up to $7 billion more than would be lost in Treasury revenue. But it would also bring in the fewest donor households.

The non-itemizer deduction with a $4,000/$8,000 cap has the largest potential effect on donors per dollar cost to the Treasury, according to the study. This policy would bring in up to 352 new donor households per $1 million lost in Treasury revenue. It is the only proposal that would generate fewer additional charitable dollars than would be lost as a result of tax overhaul.

— Check out Charitable Gifts From IRAs Shot Up by 74% in 2018 on ThinkAdvisor.