Recently, I’ve been getting many inquiries about the impact of the new tax laws on charitable giving. Most people are under the impression that charitable giving will drop dramatically because fewer people will be able to itemize their charitable deductions.
Yes, it is true that fewer people will be itemizing with the standard deduction roughly doubling, but I do not agree with the logic behind the argument that this will negatively impact charitable giving. Besides, there are several things from the tax law that will be beneficial for charitable giving, in my opinion.
As the standard deduction moves from approximately $12,000 for an individual and $24,000 for a couple, which means the first $24,000 of a family’s income will not be taxed, fewer households will itemize their charitable deductions. Currents estimates suggest instead of 30 percent of households itemizing only 5 percent will itemize under the new law.
All the doom-and-gloom talk about a decrease of $13 billion or more in charitable giving resulting from this is based on a study commissioned by the Independent Sector, which is a respected advocacy association for nonprofits and philanthropy. The study was conducted by the Indiana University Lilly Family School of Philanthropy, another well respected organization.
But looking closely at the study, I found that the estimated decrease is actually between $4.9 billion and $13.1 billion, so the $13-billion decrease most often quoted is the worst-case scenario from the study. To put this in further perspective, the latest report from Giving USA estimates total charitable giving in 2016 was $390 Billion, with 80 percent coming from individuals.
Even the worst-case scenario represents only a 3-percent decrease.
My experience with charitable giving throughout my 35-year career in philanthropy is that people are not giving to get a tax deduction. Yes, they certainly appreciate the deduction, but it’s not what motivates them to give.
The mission of the organization to which they are contributing is the real driving force.
My experience also is that lower-income earners are often very generous and give a higher percentage of their income than those earning higher incomes.
I recall from my days working at United Way my amazement with the generosity of the housekeeping staff at hotels. What I learned from these generous people is that they had friends and family members who had received assistance from a nonprofit and, therefore, understood the need and felt blessed that they were in a position to give.
My gut tells me that a higher standard deduction will result in these lower-income earners increasing their charitable giving with more in their paycheck to give. Also, when I dug deeper into the above-mentioned study, I found in the notes section a statement on Assumptions about non-itemizers: “One limitation that is common to this literature is the assumption that non-itemizers will share a tax-price of giving elasticity with itemizers. In other words, the assumption being made is that their behavior will be the same when it is likely that there are actually some differences in their behavior.”
So, it seems the even the study’s authors have some questions about this assumption and placed this qualifier in the fine print.
This is the first in a two-part series exploring how tax-law changes might impact charitable giving. Part two will be published Feb. 9. To reach columnist Phil Hanson, the president and CEO of Truman Heartland Community Foundation, send email to email@example.com or call (816) 912-4181.