Congress Approves Tax Reform Bills, Likely Leading to Drops in Charitable Giving

The House of Representatives and the Senate have approved a tax reform bill, expected to be signed by President Trump shortly, that will likely lead to sharp reductions in charitable giving.

The bill doubles the standard deduction to $24,000, a move that will reduce the number of Americans who itemize their taxes by 30 million (from 33 percent of all taxpayers to just five percent), according to the Congressional Joint Committee of Taxation. The Committee estimated that those Americans account for nearly $100 billion in itemized charitable gifts.

Research from Independent Sector and the Lilly Family School of Philanthropy shows that giving would drop under the Senate bill by $13 billion every year. Estimates from the Tax Policy Center show an even greater drop—up to $20 billion annually, and possibly more given the Senate bill also eliminates the estate tax.

“To put that figure in perspective, Giving USA estimated that giving rose from $379.89 billion in 2015 to $390.05 billion in 2016,” said Mike Geiger, president and CEO of AFP. “A drop of $13 billion in giving from the bill would offset the $11 billion growth in giving that occurred between 2015 and 2016. A decrease of $20 billion or more would completely swamp any growth and in fact, set back total giving.”

“Giving will be unaffected this year, and there could even be some increase as taxpayers and accountants look at the tax landscape in 2018 and decide to give more in December,” continued Geiger. “But we believe 2018 will be a vastly different year with charities being challenged by significant drops in giving across the sector.”

AFP and other groups, including the Charitable Giving Coalition, will be working in 2018 to have Congress enact a universal charitable deduction, which would allow all taxpayers to take a charitable deduction whether or not they itemize their taxes. The universal charitable deduction would offset most of the drop in giving from the doubling of the standard deduction.

Johnson Amendment and Other Provisions

The repeal of the Johnson Amendment, which was included in the House version of the bill but not the Senate version, was ultimately removed from the final bill.

The Johnson Amendment prohibits charities from directly or indirectly attempting to influence an election or defeat of any candidate for public office. AFP opposed repeal of the Johnson Amendment because it would open the door for charities to be used as pass-throughs for political dollars while donors get a charitable deduction.

“It’s not hard to envision a scenario where ‘charities’ are created to support political candidates and avoid the $5,000 giving limit that is attached to political action committees,” said Geiger. “Repeal of the amendment could have ramifications for both the political and charitable sectors that we don’t even see right now.”

The final tax bill contains several other provisions related to nonprofits, including:

• Increasing the adjusted gross income (AGI) limitation for cash gifts from 50 to 60 percent, but only for those donors who still itemize. 
• Doubling the estate and gift tax exemption from $5 million to $10 million for estates of decedents dying and gifts made after December 31, 2017, and before January 1, 2026.
• Creating a new 1.4% excise tax on net investment income of nonprofit colleges and universities with assets of at least $500,000 per full-time student and more than 500 full-time students.
• Imposing a 21% excise tax on compensation for certain nonprofit executives making over $1 million annually.
• Repealing provision in the tax code that allows the IRS to create an optional tax return that nonprofits could file in lieu of providing donors with written acknowledgment of contributions.
• Repealing the “Pease limitation” on itemized deductions that limits deductions for upper-income individuals.

If Trump does end up signing the bill before the end of the year, the bill will go into effect on January 1, 2018. For more information, contact the AFP Public Affairs Department at paffairs@afpglobal.org.