After Congress passed the new Tax Cuts and Jobs Act almost a year ago, a media frenzy ensued with much information and much misinformation about what did and did not get through to the final bill. The frenzy has waned, but many in the philanthropic world continue to lament the new, and doubled, standard deduction: increasing “the line” will be catastrophic for charitable giving, deterring, it is said, $16-24 billion of donations.
In a recent article, Professor Alyssa DiRusso points out that the new standard deduction will put itemization out of reach for most Americans, and the White House itself predicts that only 8% (compared to 26%) of taxpayers will itemize their FY18 taxes. Surely, then, they will all stop giving to charity!
And yet, in that same article, Professor DiRusso points out that the number of Americans who give to charity has been steadily declining year over year. This raises an important question: as the standard deduction remained more or less the same, seeing only marginal increases for the last several decades, why were fewer and fewer people giving money away? And why, of those who were giving money away, were they giving more money away each year?
The most likely explanation is that people don’t give money away for a tax break, but because they are committed to causes.
So, why are fewer people giving money away? Because of diminishing commitment to causes, communities, and organizations. As more and more of us are “bowling alone,” our detachment to others diminishes, and with it the likelihood that we will donate. It is not tax policy that affects giving, but our thinned and thinning social fabric.
Perhaps you’ve known someone (I have) who stands out as an exception to this rule—that is, they made a donation simply for a tax break. It’s odd, conspicuous, when that happens; it stands out to us precisely because it is unfamiliar: it’s probably not why you or your other friends donate. And anyone working in the nonprofit world knows that this isn’t a reliable donor: you want donors committed to your mission, not just donors committed to their tax breaks.
So what effect will the standard deduction have on charitable giving? I suspect not much. Rather than “significantly decreasing the philanthropic sector’s ability to provide resources and services,” as the Council on Foundations worries, I suspect little change will ensue. (Not to mention that the Council’s predicted harm amounts to a mere 5% of the total 410 billion charitable dollars given by Americans in 2017: not quite a “significant decrease” to produce the hamstringing they fear.)
For those of us who have never itemized a tax return because the standard deduction was already higher than our giving capacity, this new standard deduction actually frees up more money to give away (insofar as my AGI is now significantly lower). For my household, an additional $11,300 of my annual salary is now untaxed. That’s a great boon for me and a lot of people like me.
Notice, too, that the aforementioned White House study that caused concern over only 8% of Americans itemizing their taxes this fiscal year, also indicated that 74% of taxpaying “units” didn’t itemize under the old standard deduction. If we assume that all 26% of itemizers donated to charity (which is a stretch), then a full 33% of non-itemizers must have been donating anyway—and all of them just got a “tax break” from the new standard deduction, enabling them to give more away—not because of a financial benefit to them, but because they are committed to their church or their alma mater, their local homeless shelter or environmental group.
Finally, the thought leaders writing about charitable giving and the standard deduction should take notice that their work forms opinion, shapes the way their readers think about these issues. Lamenting the standard deduction’s likelihood to reduce charitable giving doesn’t promote better policy but instead subtly engenders parsimoniousness: “that’s right,” I might think, “I don’t have any good reason to make my usual charitable contributions anymore!”
Instead, authors should use their voice to show that the new standard deduction should encourage giving. Any married household that previously itemized in order to deduct $14,000 can give at the exact same level to the groups they care about—and now they don’t have to go through the trouble of itemizing, even as they deduct more for the same amount of giving. And those who haven’t itemized in the past—three-quarters of Americans!—now have more deductible income and thus no less of an incentive to donate to causes they care about. If anything, our incentive has gone up.
On a practical note, as far as this affects individuals working in development: others have written in Philanthropy Daily about how to communicate with your donors. If, until now, you have spoken to your donors transactionally, or focused on how their gift benefits them, take this as an impetus to begin focusing on your mission, on your donor’s partnership with the organization and your shared interest in achieving specific goals. This applies, of course, to how you communicate with your major donors, but this principle should also inform your tone in the mail, and thus how you communicate with all of your donors, big and small.