Charitable giving is a critical part of the American fabric. Helping each other, supporting our communities and giving to causes we care about is ingrained in our national identity. Since 1917 the US tax code has encouraged charitable giving by allowing taxpayers to “write off” their gifts to charity. While this charitable deduction is a powerful giving incentive, it unfortunately has only been available to those that who itemize their taxes and IRS data shows a clear correlation between income and itemization: In 2015, 6% of tax returns under $25,000 were itemized while, on the flip side, 93% of returns with over $200,000 in income were itemized. Why? Because, in many cases, the standard deduction exceeds the total that an individual is able to itemize and the list of allowable itemized deductions- mortgage interest, medical expenses, state and local taxes, investment and interest expense, property taxes, income taxes- favors those in higher tax brackets. This is important because last year only 24% of US taxpayers reported an itemized charitable gift- meaning over 100 million taxpayers did NOT take the charitable deduction- and we believe the recent Republican tax proposal has the potential to restrict charitable giving even further. Early estimates are forecasting a reduction in total giving of around $15 billion annually and an overall reduction of charitable giving by as much as 4.7%, with most of this decline coming from small to intermediate sized donors. As a company dedicated to providing donors of all sizes access to all available giving vehicles we believe that now is the perfect time to extend the charitable deduction to all taxpayers, and it is why we at Givinga strongly support the Universal Charitable Deduction.
Small and mid-sized donors are the backbone of American giving and, as a group. build community in a way that big philanthropy cannot. They engage actively at a local level and provide intangibles like time and volunteer resources to efforts they support. Americans donated $373.25 billion to charity during 2015 and, as a percentage of income, Americans who earn the least gave 6x more than those who earn the most. However, just when these donors are needed to increase their annual giving, their numbers are declining due, in part, to the un-level playing field that the existing deduction rules create. The current tax proposal working its way through Congress would effectively double the standard deduction, and charitable organizations are rightfully concerned that this increase would have a dampening effect on contributions- particularly from smaller donors.
So how would the proposed Universal Deduction work? In its simplest terms, the Universal Deduction would expand the charitable deduction to non- itemizers, effectively opening this deduction to all taxpayers. According to Giving 100, every $1 in tax incentives unlocks $3 in charitable activity. Imagine the philanthropic impact that providing a Universal Deduction to all Americans would unleash. In a white paper titled “Tax Policy and Charitable Giving,” the Indiana University Lilly Family School of Philanthropy estimated that making the charitable deduction universal for all taxpayers would not only erase the potential $13 billion drop in donations from the proposed tax plan changes but would increase annual giving by as much as $4.8 billion. In addition, the IUPUI study calculated that expanding the charitable deduction to non-itemizers as a stand-alone provision would have a negligible effect on overall tax revenue (-0.41 percent to -0.47 percent). Moreover, if you are a politician looking for a popular provision to support, a recent poll showed 75% of Americans in favor of a Universal Charitable Deduction.
People across the country, at all income levels, have shown a strong desire to become more engaged in civic life. Congress should level the playing field and open this important deduction to all taxpayers allowing everyone to benefit from this increase in civic activism.