The 2017 Trump tax cuts ended up causing charitable giving to fall by a noticeable degree, according to new research, meaning that the nonprofit sector took an unintended hit from the law.
The law, the Tax Cuts and Jobs Act, reduced the incentive to give to charity for many households because it doubled the standard deduction. As a result, some taxpayers who previously itemized deductions, including the charitable deduction, took the standard deduction instead. Those people no longer reap tax benefits by giving to charity.
The new research , which was conducted by researchers at Indiana University and the University of Notre Dame and circulated Monday by the National Bureau of Economic Research, found that in 2018, the year after the landmark tax package passed, charitable giving in the United States fell by some $20 billion.
In a Monday interview with the Washington Examiner, one of the authors, Notre Dame economics professor Daniel Hungerman, said about 1-in-5 households switched from itemizing deductions to taking the standard deduction because of the cuts.
“And when you switch … you lose an incentive to give the charity,” he said. “So this is the first study since that reform that tries to evaluate how the reform affected charitable giving.”
Hungerman described the downshift in giving as “noticeable,” given that $20 billion represents about 5% of charitable giving.
“I would consider 5% a reasonably large amount,” he said.
The study is particularly interesting given that parts of the 2017 tax overhaul that applied to individuals are set to sunset next year. Republicans have made extending or making permanent the expiring provisions a priority heading into 2025.
Nonprofit groups warned ahead of the tax overhaul effort that increases to the standard deduction could limit charitable giving. In the years since, they have looked for ways to add incentives for giving.
Some Republicans have proposed changes that could affect the standard deduction.
Reps. Nicole Malliotakis (R-NY) and Michelle Steel (R-CA) put forward legislation last year that would offer a bonus deduction.
Their bill would temporarily increase the standard deduction by $4,000 for married couples and $2,000 for single filers during 2024 and 2025. Currently, the standard deduction is $27,700 for married couples and $13,850 for single filers.
And extending the TCJA is a top priority for former President Donald Trump and Republicans. Republicans cite the tax changes as being the driving force behind the low unemployment rates notched right before the coronavirus pandemic took hold.
A 2018 analysis by the Tax Foundation found that if the expiring tax provisions are extended, they would increase the country’s long-run gross domestic product by more than 2% and long-run wages by about 1% and would add 1.5 million full-time equivalent jobs.
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Steve Moore, an informal Trump adviser and Heritage Foundation economist, said he thinks a major priority for Trump will be keeping lower individual tax rates low in order to avoid tax hikes for middle-class people.
“We want to make sure the lower rates stay in effect,” Moore recently told the Washington Examiner.
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