A new study by researchers at Indiana University and the University of Notre Dame finds that U.S. charitable giving fell by about $20 billion in 2018, the first year of the 2017 Tax Cuts and Jobs Act’s (TCJA) implementation. The drop was caused by the law’s change to the standard deduction for individual income taxes.
The research provides the first available estimates for the dollar amount of TCJA’s impact on giving. It is being published today by the National Bureau of Economic Research (NBER).
The study was conducted by Mark Ottoni-Wilhelm, professor of economics at Indiana University Indianapolis and professor of philanthropic studies at the Indiana University Lilly Family School of Philanthropy, Xiao Han, economist and research associate at the Indiana University Lilly Family School of Philanthropy, and Daniel Hungerman, professor of economics at the University of Notre Dame and research associate at NBER.
The TCJA substantially reduced the tax incentive for people to give to charity by nearly doubling the standard income tax deduction for U.S. taxpayers. The change prompted about 23 million households to switch from itemizing their charitable deductions in 2017 to taking the standard deduction in 2018. The new study provides the first estimates of the amount of the decline in giving among households that switched.
“The 2017 Tax Cuts and Jobs Act is the largest change in U.S. tax policy in a generation, and our research shows that it had a large effect on charitable giving,” Ottoni-Wilhelm said. “Among households that had previously been itemizing but switched to taking the standard deduction in 2018, the amount they gave to charity decreased by an average of $880 dollars.”
Applying the $880 per household decrease to the 23 million households that switched from itemizing charitable deductions to the standard deduction suggests an aggregate drop of about $20 billion in giving.
The researchers estimate that about $4 billion (20%) of the $20 billion decline is attributable to households “re-timing” some of their giving, i.e., moving forward into 2017 amounts they had planned to give in 2018, in order to benefit from itemizing deductions in 2017. They estimate that the remaining $16 billion (80%) is a permanent annual drop caused by TCJA.
TCJA’s increase in the standard deduction had little to no effect on giving to religious congregations, whose primary focus is on religious purposes and spiritual development, the study finds. Most of the decrease was in giving to other types of organizations, especially in giving to organizations whose primary focus is helping people in need of basic necessities.
The researchers were able to estimate the tax law’s impact on giving because of the Indiana University Lilly Family School of Philanthropy’s Philanthropy Panel Study (PPS). The PPS, the school’s signature research study, biennially tracks the giving of the same families over time whether they itemize or not. This allowed researchers to measure giving patterns both before and after the passage of TCJA, and to estimate how much giving changed among households that switched from itemizing to non-itemizing. The PPS was designed in part to enable better understanding of the impact on giving of household, economic, societal, policy and other changes.
The full study, Tax Incentives for Charitable Giving: New Findings from the TCJA, is available at https://www.nber.org/papers/w32737.
The Philanthropy Panel Study (PPS) is a part of the University of Michigan’s Panel Study of Income Dynamics (PSID). The collection of the PSID data used by the authors was partly supported by the National Institutes of Health and the National Science Foundation. Collection of the PPS data within the PSID was begun in 2001 with funding from the Atlantic Philanthropies, with continuing waves funded by partnering donors; recent institutional donors include the Bill & Melinda Gates Foundation, Charles Stewart Mott Foundation, Fidelity Charitable Catalyst Fund, Google.org Charitable Giving Fund, and The John Templeton Foundation.
About the Lilly Family School of Philanthropy
The Indiana University Lilly Family School of Philanthropy at IU Indianapolis is dedicated to improving philanthropy to improve the world by training and empowering students and professionals to be innovators and leaders who create positive and lasting change. The school offers a comprehensive approach to philanthropy through its undergraduate, graduate, certificate and professional development programs, its research and international programs and through The Fund Raising School, Lake Institute on Faith & Giving, the Mays Family Institute on Diverse Philanthropy and the Women’s Philanthropy Institute. For more information, visit philanthropy.indianapolis.iu.edu.