AEI: GOP tax law will reduce charitable giving by $17.2 billion

AEI: GOP tax law will reduce charitable giving by $17.2 billion
© Greg Nash

The tax law President TrumpDonald John TrumpHouse Republican threatens to push for Rosenstein impeachment unless he testifies Judge suggests Trump’s tweet about Stormy Daniels was ‘hyperbole’ not defamation Rosenstein faces Trump showdown MORE signed in December will lower charitable giving in 2018 by $17.2 billion, or 4 percent, before accounting for economic growth, according to a new report from the right-leaning American Enterprise Institute (AEI).

The tax law does not directly limit the itemized deduction for charitable contributions. However, the measure significantly increased the standard deduction, which reduces the number of people who will take itemized deductions. The law also cut tax rates for individuals, which could lower the incentive for people who itemize deductions to make charitable donations.

ADVERTISEMENT

AEI researchers estimated that of the projected $17.2 billion decline in giving, $14.2 billion of the reduction will be due to the bigger standard deduction and $3 billion will be due to other provisions in the tax law.

The Congressional Budget Office (CBO) has estimated that the tax law will increase gross domestic product by 0.3 percent in 2018. AEI estimated that if that growth projection materializes, the tax law will only reduce charitable giving by $16.3 billion.

The AEI researchers examined several options that Congress could take to mitigate the tax law's impact on charitable giving.

Reps. Mark WalkerBradley (Mark) Mark WalkerOn The Money: Midterms to shake up House finance panel | Chamber chief says US not in trade war | Mulvaney moving CFPB unit out of DC | Conservatives frustrated over big spending bills Conservatives left frustrated as Congress passes big spending bills Trump's Puerto Rico tweets spark backlash MORE (R-N.C.) and Chris SmithChristopher (Chris) Henry SmithFor Poland, a time for justice On The Money: Broad coalition unites against Trump tariffs | Senate confirms new IRS chief | Median household income rose for third straight year in 2017 | Jamie Dimon's brief battle with Trump CORRECTED: GOP lawmaker taken out of context in remarks on gay adoption MORE (R-N.J.) have offered separate bills that would create a charitable contribution deduction that could be taken by taxpayers even if they don't itemize. And the CBO has previously analyzed an option to replace the charitable deduction with a 25 percent credit. 

AEI found that an above-the-line deduction and a 25 percent credit would each more than offset the decline in giving resulting from the tax law, even if taxpayers have to make a minimum amount of donations to be eligible for the tax benefit.

“Without repealing any of the recent reforms, additional policy changes could reverse the impact of the [tax law] on charitable giving,” the AEI researchers wrote in their report.

Walker said in a statement that the AEI research shows that his bill "would incentivize more charitable donations and expand the ability to deduct giving to lower and middle income households – many of whom are among the most generous givers.” He also praised the tax law for providing "jet fuel for our long-stagnant economy."

The researchers found that a 25 percent credit would increase charitable giving by taxpayers in the lower 90 percent of income by more than an above-the-line deduction would. However, a 25 percent credit also would also lead to a further decline in charitable giving by the highest-income taxpayers.

updated at 5 p.m.