Editor’s note: This is the first part of a two-part column on an alternative outlook on charitable giving under the new tax law. The second part will be published Tuesday, Jan. 30.
Recently I have been getting many inquiries about the impact of the new tax laws on charitable giving. Most people I get questions from have heard that charitable giving will be down 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 doubled; however, I do not agree with the logic behind the argument that this will negatively impact charitable giving. Let me explain why I don’t agree with the logic of this argument and also share several things from the tax law that will be beneficial for charitable giving.
Yes, the standard deduction has doubled to approximately $12,000 for an individual and $24,000 for a couple. So, the first $24,000 of a family’s income will not be taxed. This will result in many fewer households itemizing their charitable deductions. The estimate is instead of 30 percent of households itemizing, only 5 percent will itemize.
All the doom and gloom talk about a $13 billion-or-more decrease 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. Therefore, some of my colleagues in the nonprofit world may not agree with me when I say I don’t agree with the logic of the study and do not believe that fewer itemizers will result in less charitable giving.
Looking closely at the study I found that the decrease estimated was $4.9 billion to $13.1 billion. So the $13 billion decrease most often quoted is the worst-case scenario from the study. And to put this in perspective, the latest report from Giving USA estimates total charitable giving in 2016 was $390 billion with 80 percent of this coming from individuals. So the worst-case scenario represents 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, it’s the mission of the organization to which they are contributing.
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.
See Part 2 of this column in Tuesday’s Examiner. Phil Hanson is president and CEO of the Truman Heartland Community Foundation, based in Independence.