The Impact of Five Different Tax Policy Changes on Household Giving in the United States

Abstract

About $450 billion were donated to U.S. nonprofits in 2019 according to the most recently available data (Giving USA Foundation 2020). However, despite the increases in charitable dollars, the share of households that donate has been declining: in 2000, 67 percent of American households donated to nonprofits, but in 2016, only 53 percent of American households donated (Indiana University Lilly Family School of Philanthropy 2019). This trend in decreasing share of U.S. households that donate to charitable causes pre-dates the passage of the 2017 Tax Cuts and Jobs Act (TCJA), but could be accelerated by the recent policy changes. TCJA significantly changed federal tax policy and these changes are expected to affect charitable giving (Brill and Choe 2018; Ricco 2018; Rooney et al. 2017). Nonprofit leaders, as well as policymakers, have been exploring additional policy proposals to offset the potential negative impact on charitable giving. This paper investigates the estimated effects of potential policy proposals on charitable giving, donor incidence rates, and Treasury revenue. This study used the Penn Wharton Budget Model (Penn 2019a, 2019b) to run microsimulations of the effects of five tax policy proposals on charitable giving dollars, the number of households that donate, and the forgone Treasury revenue. The five proposals included: a non-itemizer charitable deduction; a non-itemizer charitable deduction with a cap; a non-itemizer charitable deduction with a floor; an enhanced non-itemizer charitable deduction, which provides a higher value deduction for low- and middle-income households; and a non-itemizer non-refundable 25 percent charitable giving tax credit. Of the five policy options analyzed, providing a non-refundable 25% charitable giving tax credit to non-itemizers has the largest positive impact, increasing both the amount of charitable giving dollars ($37 billion in 2018 dollars) and the number of donor households (10.6 million) of the five policy options analyzed. However, it is also the most “expensive” proposal (measured in terms of forgone Treasury revenue) for United States (U.S.) Treasury revenue (−$33.0 billion). Four of the five policy proposals bring in more charitable dollars than are lost in Treasury revenue. Four of the five policy proposals bring in more charitable dollars than were projected to have been lost as a result of TCJA. All five proposals bring in more donor households that were expected to be lost as a result of TCJA. This paper is based on a published report written and researched by [school] in partnership with the Wharton School of Business at the University of Pennsylvania and commissioned by Independent Sector. The report, “Charitable Giving and Tax Incentives Estimating changes in charitable dollars and number of donors resulting from five policy proposals,” can be found at this link: http://hdl.handle.net/1805/19515.