Charitable Giving
Prior to its enactment, one of the more widespread criticisms of the 2017 tax legislation bill was the potential impact that the sweeping changes would have on charities who rely heavily upon taxpayer donations to fulfill their mission. Although the federal tax deduction for charitable contributions was not changed dramatically under the final tax reform bill—post-reform, taxpayers are entitled to a deduction for cash gifts subject to a 60 percent AGI limit, while prior to reform, a 50 percent limit applied—other changes were expected to impact the deduction. For example, the substantial expansion of the standard deduction and limitations on itemized deductions themselves should mean that fewer taxpayers will itemize their deductions, and since the deduction for charitable contributions is an itemized deduction, it was argued that fewer taxpayers would give to charity.
We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions on how the changes made by tax reform have impacted charitable giving, as well as any potential impact going forward.
Their Votes:
Byrnes
Bloink
Their Reasons:
Below is a summary of the debate that ensued between the two professors.
Byrnes: First of all, under reform, the deduction for charitable donations was actually expanded so that taxpayers who itemize can now deduct larger cash gifts. Secondly, the panic over the impact on charitable donations has been completely unfounded—really, just another attempt by the democrats to incite panic and find a way to kill a tax reform package that has provided such widespread benefits. Taxpayers who give to charity continue to give to charity because they believe in a cause, not because they might get a tax break.
Bloink: While it's nice to believe that taxpayers are motivated to "do good" on a widespread basis just for the sake of supporting a good cause, the reality is that many middle class taxpayers who previously gave to charity are no longer financially able to do so because they no longer itemize their deductions because of the larger standard deduction and the fact that post-reform, it's more difficult for taxpayers to claim basic itemized deductions such as the deduction for state and local taxes—so they're unable to reach the "threshold" of the standard deduction.
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Byrnes: Tax reform has provided substantial tax breaks and benefits to middle class taxpayers that have nothing to do with itemized deductions. Look at the enlarged tax credit and the changes made to the tax brackets and rates themselves. Although the financial incentive may not be as direct, it's still there because tax reform benefits everyone—even if only in the form of a strengthened economy and widespread job security. Regardless, taxpayers can still give to charity using tax-preferred strategies designed to get them the deduction if they need it.
Bloink: Realistically, only the wealthiest taxpayers are able to take advantage of the remaining tax breaks that can be realized through charitable giving. Wealthy taxpayers who can make large annual contributions that exceed the $24,000 standard deduction (for joint returns) are able to take the deduction every year. Wealthy taxpayers who are able to form their own foundations and "bunch" their donations to the foundation into a single year…those high net worth taxpayers are still getting the deduction. It's the ordinary taxpayers who want to make smaller donations who lose out under the new law.
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Byrnes: Charities haven't suffered because taxpayers are giving regardless of the new rules. The fact of the matter is that many middle-income taxpayers aren't financially motivated to give to charity—they're motivated to give for more personal reasons, and have continued to support the charities that are important to them. These taxpayers have the option of saving (not giving) in some years in order to give enough to benefit from the deduction in year two or even in year three—that's not a strategy reserved exclusively for the wealthy.
Bloink: Unfortunately, I don't think the system is working in the way that Professor Byrnes thinks it is. The changes to the basic mechanisms for calculating tax are just another way that tax reform has benefitted the one percent in this country—and the ability of middle-income taxpayers to provide steady support to charities has dwindled as a result. Ordinary Americans often need that tax break in order to be able to afford to give, and so refrain from giving post-reform, while the one percent can manipulate the system to ensure they still get the same tax benefit that existed pre-reform.