Politics & Policy

On Giving Tuesday, Consider the Ways Our Tax Code Discourages Charity

A woman counts U.S. dollar bills at her home in Buenos Aires, Argentina August 28, 2018. (Marcos Brindicci/Reuters)
The impulse behind the annual occasion is admirable. But there’s much more we can do to increase and better measure Americans’ charitable giving.

The annual Giving Tuesday campaign to increase charitable giving in the spirit of the holiday season is back again. It’s never been entirely clear, however, whether the occasion increases overall charitable giving or merely shifts more of it to the first Tuesday in December — and, indeed, there’s reason to think that that’s exactly what’s happening.

The most authoritative source tracking U.S. charitable giving — the Giving USA tabulation compiled by Indiana University’s Lilly Family School of Philanthropy — has reported that, even as overall giving climbed in 2018 (the most recent year tracked), individual giving declined. Specifically, “giving by individuals totaled an estimated $292.09 billion, declining 1.1% in 2018 (a decrease of 3.4%, adjusted for inflation).” This is exactly what one what would expect following the passage of the 2017 Tax Cuts and Jobs Act, which by raising the standard deduction for federal income-tax returns drastically reduced the number of taxpayers who itemize their deduction, and who thus no longer qualified for the charitable tax deduction.

In other words, Giving Tuesday is trying to push back against a tide that transcends appeals to individual generosity. To actually increase charitable giving, we must adjust the tax code.

Today, the overwhelming number of Americans who make charitable donations do not receive any tax advantage for doing so. As the Tax Policy Center puts it, “most low- and moderate-income taxpayers do not claim a deduction for charitable contributions, largely because most do not itemize.” Yet the TPC notes that the 90 percent of households that do not itemize make at least 40 percent of all charitable contributions. In other words, if, in the spirit of Giving Tuesday, we want to increase charitable giving, targeting that 90 percent is key.

But today, the statistics show that charitable giving is increasingly a province of the affluent. The Tax Policy Center reports, for instance, that a small group of households — the 10 percent that itemize their tax deductions — account for fully 60 percent of charitable donations.

There are, however, several options that would tweak the tax code to reward charitable giving by non-itemizers.

For instance, the Lilly School estimates that a 25 percent charitable-giving tax credit — a reduction in taxes owed whether one itemizes deductions or not — would increase giving by some $37 billion and increase the number of donor households by 10.6 million. Even just extending the charitable deduction — not a dollar-for-dollar credit — to non-itemizers would, says the Lilly School, “generate up to $26 billion in additional donations and induce up to 7.3 million additional households to donate.”

Such approaches would, of course, reduce federal tax revenues at a time when the federal budget deficit is rising. But the foregone revenue would be relatively modest, estimated in the range of $26 billion to $33 billion for the two options above. And that money would go to organizations often trying approaches to social ills that the government hasn’t considered — or isn’t well-equipped to attempt. Would we rather spread $33 billion across a range of community organizations accountable to their local boards, or add another drop to the bucket of federal spending?

It is worth noting, of course, that, even as approaches to increasing charitable giving’s breadth should be considered, we do not really have a firm idea of how generous Americans really are. Our estimations of charitable giving by non-itemizers are, at best, an educated guess based on surveys. The small cash donations that help churches feed and clothe the hungry aren’t seriously tracked. Nor is the cash that goes to Parent Teacher Organizations through bake sales. Another huge “donation” — the labor of volunteers — is similarly hard to quantify. But the federal government concludes that 30 percent of all adults volunteer in some manner — and that the value of that labor is some $167 billion.

The impulse behind Giving Tuesday is an admirable one. But much can be done through tax policy, as well as publicity, to increase and better measure the already-impressive level of U.S. charitable giving.

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