For more than a century, our nation’s tax system has encouraged Americans to give back to their communities by providing a tax deduction for contributions to charitable organizations. However, it is only available to taxpayers who itemize on their tax returns rather than claim the standard deduction. While Americans give to charitable organizations for many reasons, studies have shown that tax policy greatly shapes the size and number of charitable donations made by taxpayers.
Our Culture of Giving is At Risk
Although the 2017 tax law retained the charitable deduction, it made other structural changes to the tax code—like increasing the standard deduction and repealing personal exemptions—that eliminate this incentive to give for about 21 million taxpayers. While estimates vary, there is strong consensus from charitable research experts that this will decrease giving by billions of dollars per year. Over the past 15 years, the share of Americans donating to charity dropped 11 percentage points. Without tax incentives, this alarming trend will accelerate.
Expand the Charitable Deduction
Every American should have an incentive to invest in their community by engaging in charitable giving, regardless of whether they itemize their taxes. This would allow charities to serve more people and make the tax code fairer. Independent Sector is working collectively with our partners and members to engage policymakers on this critical priority.
Representatives Chris Smith (R-NJ) and Henry Cuellar (D-TX) have introduced legislation (H.R. 651) that would allow every American to access the charitable deduction. Please join us in asking your Representative to cosponsor this bill today.
Potential changes to incentives for charitable giving in the tax code have been an ongoing part of deficit reduction and tax reform discussions for a number of years. More recently, tax reform proposals offered by the House Ways and Means Committee and the Trump Administration would retain the charitable deduction. However, additional proposals on the individual side to lower rates and increase the standard deduction would have the unintended consequence of reducing charitable giving.
In the previous Administration and Congress, President Barack Obama consistently put forward a proposal to cap the charitable deduction at 28 percent for high-income taxpayers – and Congressional leaders explored other proposals to establish a hard-dollar aggregate cap or a minimum threshold for claiming itemized deductions.
In September 2012, the Independent Sector Board of Directors adopted Guiding Principles for Public Policy on Charitable Giving. The Principles focus on the role of tax policy in encouraging charitable giving, the importance of sustaining the diversity and independence of the sector, and the sector’s commitment to honor the public trust through transparency and accountability. These Principles will be used to guide IS’s development and assessment of legislative proposals to ensure that America’s strong tradition of charitable giving is sustained and strengthened.
Based upon these Principles, Independent Sector urged Congress to reject proposals that limit the value of itemized deductions for charitable donations, and advocated for policies that encourage Americans to contribute to the charitable causes of their choice by providing tax deductions for their gifts.