“After reaching record-breaking levels of giving in 2017, American individuals and organizations continued their generous support of charitable institutions in 2018,” said Rick Dunham, chair of Giving USA Foundation and CEO of Dunham + Company. “However, the environment for giving in 2018 was far more complex than most years, with shifts in tax policy and the volatility of the stock market. This is particularly true for the wide range of households that comprise individual giving and provide over two-thirds of all giving.”
A number of competing factors in the economic and public policy environments may have affected donors’ decisions in 2018, shifting some previous giving patterns. Many economic variables that shape giving, such as personal income, had relatively strong growth, while the stock market decline in late 2018 may have had a dampening effect. The policy environment also likely influenced some donors’ behavior. One important shift in the 2018 giving landscape is the drop in the number of individuals and households who itemize various types of deductions on their tax returns. This shift came in response to the federal tax policy change that doubled the standard deduction. More than 45 million households itemized deductions in 2016. Numerous studies suggest that number may have dropped to approximately 16 to 20 million households in 2018, reducing an incentive for charitable giving.
This is from Giving USA, “Giving USA 2019: Americans gave $427.71 billion to charity in 2018 amid complex year for charitable giving,” June 18, 2019.
Strikingly, although individual contributions to charity to fell in real terms, they did not fall much. The report states:
↓ Giving by individuals totaled an estimated $292.09 billion, declining 1.1% in 2018 (a decrease of 3.4%, adjusted for inflation).
Note in the second quoted paragraph above that the author at Giving USA understands that the doubling of the standard deduction caused many fewer people to itemize and that, therefore, the incentive to give to charity fell.
But there’s one incentive factor that the summary of the report totally misses. And this factor means that the steady state for future charitable giving by individuals is probably higher than the author at Giving USA expects. What is that factor?
HINT: Did people know before December 31, 2017 about the change in the tax code that would start in 2018?
READER COMMENTS
Floccina
Jun 19 2019 at 3:10pm
Because of our, IMO stupid tax laws, I do my giving in alternate years. That is first year I give as much as I would have that year plus what I would have given the next year. Year 2 I do not give at all.
IVV
Jun 19 2019 at 4:34pm
My giving has cratered because I moved from the itemized to non-itemized category, and I have to give a good whopping chunk of money before I see any tax benefit. And no, I was unsure of what the effect of the tax code would have on the relation between charitable contributions and tax incidence until after everything was in place and I could actually start calculating the effect. Until then, it was all just speculation and no one could credibly advise on the strategy.
Mark Z
Jun 19 2019 at 6:05pm
If what you’re suggesting is true, we should expect to see a bump in charitable giving in 2017 before the decline in 2018. According to nonprofitsource.com, total charitable giving grew by 3.8% from 2014 to 2015, 4.1% from 2015 to 2016, and 5% from 2016 to 2017 (2013-2014 saw a 4% increase). Though the cursory data I found isn’t enough to draw a definitive conclusion, it seems consistent with this hypothesis.
https://nonprofitssource.com/online-giving-statistics/
Thaomas
Jun 20 2019 at 6:55am
The basic problem with the charitable giving incentive, like the mortgage interest incentive is that it is a deduction so the value to the giver/interest payer depends on their marginal tax rate. These should be converted to partial tax credits. Deductions should be limited to things that are really just not consumption like personal saving and taxes.
Alan Goldhammer
Jun 20 2019 at 9:06am
Our charitable giving has not changed over the years. I was interested to see what would happen with the new tax law this past tax year. Our standard deduction meant that we got no tax benefit at all from the charitable contributions as compared to past tax years. I’m not sure that Floccina’s approach, outlined above, will help us as we are retirees whose IRA withdrawals, investments, pension, and Social Security payments will continue to push us into a higher income range (not that I am complaining!!!).
Thaomas is correct about the deductions being based on marginal tax rates. I am hoping that some day we will see real tax reform with the elimination of all tax preferences, elimination of the corporate tax (really difficult to construct properly and it continues to bring in a smaller percentage of revenue), and institution of a Federal VAT.
Thaomas
Jun 20 2019 at 11:46am
As I see it, the main reason for eliminating business taxation is that it is not in practice uniform. Income from mineral extraction, real estate and “unrepatriated” profits of income earned abroad is treated very different from other business income. (And these are just the ones I know about). Business income is just income of its owners and should be imputed to them and taxed as personal income.
john hare
Jun 20 2019 at 6:22pm
If I’m reading you right, you’ve just eliminated business taxes by passing the income through to the end recipient and taxing them. The problem with some business taxes is that the business is taxed for making a profit, and then the money is taxed again as income when the shareholders get paid.
Mark Z
Jun 20 2019 at 11:54am
A pessimistic point: given the ineffectiveness of many charities and the degree of wastage, I’m not sure it can be assumed to be a net negative for society when someone, say, chooses not to donate, and instead to invest. That is, I don’t think it can be trivially assumed that the ‘social surplus’ from the investment will be less than the ‘social value’ produced by the charity.
Matthias Görgens
Jun 30 2019 at 11:10am
Especially when there’s so much bureaucracy, including tax optimisations workarounds associated with charitable giving.
Most nominally charitable giving is just consumption on disguise.
The government, inefficient as it is, is probably not worse than your median charity. So not deducting charitable giving from your taxes shouldn’t make things worse.
Comments are closed.