IMAGE: CNS photo/Eugene Garcia, EPA
By Carolyn Mackenzie
WASHINGTON (CNS) — While
Capitol Hill and much of the nation have been following the roller coaster of debate
surrounding what will come of GOP efforts to repeal and replace the Affordable
Care Act, some are focused on what President Donald Trump’s proposed tax plan
might mean for charitable giving.
His proposed tax plan would
place a cap on total itemized deductions, including those for charitable
giving. By raising the standard deduction and eliminating the estate tax,
experts say that this plan would reduce incentives that often prompt donations
to charities.
According to Giving USA’s
“Annual Report on Philanthropy,” individual donors drove the rise in philanthropic
giving seen in 2016. Giving to religion increased by 3 percent, 1.8 percent
adjusted for inflation, in 2016, with an estimated $122.94 billion in
contributions. This accounted for 32 percent of all charitable giving in 2016,
which totaled at $390.05 billion.
The Indiana University Lilly
Family School of Philanthropy prepares these estimates for the Giving USA
Foundation. Though giving rates rose across the board, giving by individuals
grew at a higher rate than did giving by foundations or corporations.
Rick Dunham, board member of
Giving USA and CEO of Dunham+Company, a consulting company based in Plano,
Texas, remarked that two factors that significantly affect charitable giving
are the stock market and attendance at religious services.
“When you look at those who give
charitably, there’s a direct correlation between those who attend church or
religious services at least weekly,” Dunham told Catholic News Service in a
phone interview.
Furthermore, Dunham noted, donations
by the top 2 percent of income earners account for a large percentage of
charitable giving by individuals. As such, the stock market has a direct impact
upon charitable giving.
Joseph Rosenberg, senior
researcher at the Urban-Brookings Tax Policy Center in Washington, noted that
tax incentives are just one of many reasons why people donate to charity. One
tax policy that may motivate donations, he explained, is the individual income
tax deduction for charitable contributions.
“The clear consensus is that the
deduction does increase giving,” Rosenberg told CNS. “It’s unclear how big the
size of the effect is.”
While it is theoretically
available to all taxpayers, Rosenberg observed, as an itemized deduction it
goes unused by most taxpayers, who claim a standard deduction instead.
“Roughly speaking, only about 30
percent of taxpayers elect to itemize deductions,” Rosenberg said. “But, those
30 percent obviously make up a very large chunk of charitable giving, in
particular our higher income households.”
Under Trump’s proposed plan, the
standard deduction would double. For the 2016 tax year, the standard deduction
for singles and married persons filing separate returns was $6,300; under
Trump’s plan it would be $12,600. For married couples filing jointly it was
$12,600 in 2016; under Trump’s plan it would be $24,000.
Rosenberg indicated that an
increase in the standard deduction would result in a decrease in the number of
people who itemize their deductions. If people who choose the standard
deduction make charitable donations, Rosenberg explained, they are not
necessarily paying more taxes than they would if they choose to itemize.
“It does mean that what they’re
sort of mentally thinking about is, ‘What if I gave $100 more to charity?'”
Rosenberg said. “If they’re not itemizing their deductions, they’re not
changing their taxes. They get no additional tax benefit unless they itemize.”
Dunham affirmed that an increase
in the standard deduction would likely reduce the amount that people give to
charity.
“I don’t believe that the
charitable tax deduction is an incentive to give as much as it is an incentive
to give more,” Dunham said.
Lucas Swanepoel, senior director
of government affairs at Catholic Charities USA, said that with less of an
incentive, donations from individuals will likely decrease, calling it an
“unintended consequence.”
“If we were to double the
standard deduction, only about 5 percent of taxpayers would itemize,” Swanepoel
told CNS, citing a study done by Indiana University Lilly Family School of
Philanthropy.
The same study found that
reducing the top tax bracket to 35 percent and doubling the standard deduction,
as outlined in Trump’s plan, could potentially lead to a $13.1 billion
reduction in charitable giving, which Dunham also noted. The study further
estimates that this would reduce charitable giving to religious congregations
by up to 4.7 percent.
“One of the interesting things
about the Indiana University study is that it looked at secular givers and
religious givers,” Swanepoel said. “Even in religious giving, we see that there
is a change in incentive to give based on tax policy.”
A second issue that Rosenberg
raised is that of the estate tax, which Trump often refers to as the “death
tax.” Trump’s proposal would eliminate the estate tax. Under current tax law,
if the decedent leaves property to a qualifying charity, that amount is
deductible.
“When people die, they can leave
assets to charity and they get a full deduction against the estate tax,”
Rosenberg said.
According to Giving USA, giving
by bequest accounted for 8 percent, or $30.36 billion, of all charitable giving
in 2016.
“There should be some concern
about what would happen to charitable bequests if they eliminate the estate
tax,” Rosenberg said. “That’s not to say that folks like Warren Buffett
wouldn’t leave their money to charity just because they’re not getting a
deduction.”
Dunham explained that while
giving by bequest accounts for about 8 percent of charitable giving, giving by
individuals accounts for about 72 percent. As such, Dunham expressed more
concern about the changes that may occur with itemized deductions under Trump’s
proposed plan.
Swanepoel highlighted other
important aspects of tax policy, such as the child tax credit and the earned
income tax credit, that are important for families and low income individuals,
explaining that charitable giving is just one dimension of charity in tax law.
“We want to foster a culture of
giving, and the tax code is one way in which we help that effort,” Swanepoel
said.
Trump’s plan proposes to boost
the child and dependent care credit, according to a one-page document
distributed by the White House. The Trump administration released this proposal
April 26 and hopes to have a tax plan in place before Congress departs for its
August recess.
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