Independent Sector’s experience advocating on behalf of the charitable community has shown us that tax policies have direct and indirect effects on Americans’ charitable contributions to all types of 501(c)(3) nonprofit organizations, from places of worship to local foodbanks. Between 2000 and 2014, tax policy experts documented a decline in the number of people donating to charity, particularly among low- and middle-income households. Studies have estimated recent tax policy changes also may be associated with a decline in the number of households that donate. The concentration of charitable giving among a small proportion of households poses concerns for the long-term fiscal health of the sector and a threat to its ability to reflect the breadth and interests of society.
Independent Sector believes enabling all Americans to access charitable giving incentives through the tax code is a promising solution to these concerns. Since 1917, the U.S. tax code provides incentives to Americans to invest in their communities by allowing taxpayers to deduct their charitable gifts. Currently, the charitable deduction is only available to those who itemize on their taxes. In other words, every year, the roughly 10% of taxpayers that file itemized returns receive a reminder that their charitable gifts count. Rather than incentivizing giving for a few, our tax code needs to send a message of fairness and gratitude to all Americans by affirming their charitable contributions are critically important to their communities, their government, and civil society. In this case, an important question remains: what policy details that make up a non-itemizer charitable giving incentive will help turn the curve on these concerning trends?
To help answer this question, Independent Sector commissioned research to gain a better understanding about the potential impact of a range of policy proposals that extend charitable giving incentives to non-itemizers. The Indiana University Lilly Family School of Philanthropy at IUPUI conducted the research in partnership with the Wharton School of Business at the University of Pennsylvania. Independent Sector’s aim is to provide charitable organizations and policymakers with data they can use to make sound decisions on what best strengthens American communities.
Specifically, the study analyzed the estimated impact of five policy proposals that incentivize charitable giving among non-itemizers:
- Deduction identical to itemizers’ tax incentive;
- Deduction with a cap in which gifts over $4,000 or $8,000 do not receive an incentive;
- Deduction with a modified 1% floor, in which donors can deduct half the value of their gift if it is below 1% of their income and the full amount of the donation above 1%;
- Non-refundable 25% tax credit; and
- Enhanced deduction that provides additional incentives for low- and middle-income taxpayers.
The research findings include:
- The study’s estimates of giving for 2018-2025 indicate that up to 2.6 million fewer households could donate each year and charitable giving could be up to $19.1 billion less each year than had 2017 tax code changes not become law.
- All five policies could bring in more donor households and four of the five policies could bring in more charitable dollars than could be lost due to recent tax changes.
- Four of the five tax policies could generate more giving than cost to the government.
America has proven it is willing to invest in the activities it values, and Independent Sector believes an investment in the infrastructure that powers social change in our country is not only worthwhile, but essential to ensure we continue to work towards a future in which all people thrive. We also believe the results of this research indicate non-itemizer tax incentives would be a strong return on investment for communities.
Our tax code can and should more fairly incentivize all Americans to give in support of their communities. Independent Sector is hopeful that this research provides a foundation of knowledge for further discussion, alignment, and momentum as we pursue this vital goal.