For decades, the share of Americans donating to charity has been in decline, hitting a new low of 49.6% in a 2018 study. This can be attributed to many factors, both social and economic. We saw a large drop-off during the great recession, and it’s hard to get donors back once they stop giving. At the same time, there’s less participation in religious organizations and associations, which typically drive charitable habits.
Policymakers have an obligation to stanch the bleeding. We represent many advocacy groups in the nonprofit sector, and their answer to this dilemma is simple: Federal legislators should enact a universal charitable tax deduction to encourage more giving.
Tax incentives are designed to reward behavior that Congress deems valuable to society, such as charitable giving. But the tax code only allows taxpayers to deduct charitable contributions if they itemize their deductions. That means that only about 10% of taxpayers can take advantage of this tax policy—and those who do are often high earners.
After the Tax Cuts and Jobs Act in 2017 increased the standard deduction for single and joint filers, fewer taxpayers now have reason to itemize their deductions. One estimate from the Urban-Brookings Tax Policy Center suggests the new law shrunk the number of households claiming an itemized deduction for their charitable gifts by 21 million in 2018.
As the years pass, even fewer taxpayers will have a tax incentive to engage in charitable behaviors if the tax code remains unchanged. A universal charitable deduction could help reverse this decades-long decline in giving. It would allow all taxpayers to claim a charitable tax deduction—regardless of whether they itemize.
We’ve seen smart tax policies like this work before. In 2020, when the Covid-19 pandemic sparked unprecedented public need, federal lawmakers enacted a $300 universal charitable tax deduction. Although the historic giving levels of the pandemic can’t be solely attributed to this policy, the final day of 2020 saw an impressive 28% uptick in donations of that exact amount—$300.
Unfortunately, this deduction expired at the end of 2021, and the Fundraising Effectiveness Project, which tracks giving behavior by quarter, reported a 1.7% decline in total giving in 2022, as well as a 10% decline in the number of donors.
Critics of a universal tax deduction often claim that a more accessible charitable tax deduction would reward taxpayers who already donate or wouldn’t necessarily lead to more giving. These notions are misguided, and history and research tell a different story.
First, the argument that this incentive would be a windfall for high earners could be applied to any of the dozens of incentives in the tax code, and it ignores the overall policy rationale.
Second, the claim that it wouldn’t spur charitable giving flies in the face of decades of academic study. According to the Lilly Family School of Philanthropy, charitable giving has negative elasticity. That means when the price of giving goes down, the amount a donor is willing to give increases—exactly what an enhanced tax incentive is meant to capitalize on.
It doesn’t take a graduate degree to recognize that tax incentives exist because they work. If they didn’t, we’d save a lot of federal revenue by removing them from the tax code with little economic consequence. This then raises the question: Is the charitable giving of the roughly 10% of taxpayers that itemize more important than that of everyday Americans?
Most advocates in the charitable sector, and most academics who study it, have long agreed that the value of generosity doesn’t lie in how much we’re willing to give, but how many of us do. Allowing more taxpayers to advance solutions that the government can’t, won’t, or shouldn’t do on its own is crucial to democratic participation in a civil society.
Enacting a universal charitable tax deduction is just one step of several that must be taken by Congress to reverse the historic decline in donors—and it has years of research and precedence to back it.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Sara Barba is principal at Integer LLC, an advocacy and policy firm in Washington, D.C.
Jorge E. Castro is a member at the law firm of Miller & Chevalier Chartered, where he is co-lead of the tax policy practice.
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