Public Policy
Charitable Deduction

Current Law

Currently, a taxpayer's charitable deduction rate is tied to his or her marginal tax rate. For example, a taxpayer earning more than $400,000 annually ($450,000 for households) can take itemized deductions for charitable donations at the 39.6 percent rate. This means that a taxpayer gets a tax benefit of nearly 40 cents for every $1 he or she donates to educational institutions or other charities.

Proposed Changes

By lowering individual tax rates and doubling the standard deduction, U.S. President Donald Trump's tax reform plan and the House Republican tax reform blueprint would increase the cost of giving for most Americans. A study commissioned by Independent Sector and conducted by Indiana University's Lilly School of Philanthropy found that a similar tax reform plan that lowered rates and raising the standard deduction would reduce giving by up to $13.1 billion.

During the 2016 presidential campaign, President Trump also proposed a hard dollar cap on itemized deductions, including the charitable deduction, of $100,000 for individuals and $200,000 for married couples. 

In 2014, former U.S. House Ways and Means Chairman Dave Camp (R-MI) released a tax reform discussion draft that included a two percent Adjusted Gross Income (AGI) floor on the charitable deduction. If enacted, only amounts given above the floor would be deductible to the donor. The Camp draft also included other limitations to the deduction, including limits on gifts of appreciated property and a lowering of the annual limitation on cash gifts to charity from 50 percent to 40 percent of AGI.

In November 2017, Rep. Mark Walker (R-N.C.) and Sen. James Lankford (R-OK) introduced the Universal Charitable Giving Act of 2017, which would provide an important incentive for individuals to increase their charitable giving by extending the charitable deduction to non-itemizing taxpayers. The Universal Charitable Giving Act would address the expected decline in giving if the current version of the Tax Cuts and Jobs Act is signed into law. The Act would allow non-itemzing taxpayers to deduct charitable gifts up to one-third of the standard deduction threshold and if included in the Tax Cuts and Jobs Act, would give all taxpayers a tax incentive to give to educational institutions and other charitable organizations. 

CASE Position

CASE supports preserving the full value of the charitable deduction and the enactment of a universal charitable deduction. 

Impact on Educational Institutions

Supporters of proposals to limit the value of the charitable deduction argue that the effect on donations to educational institutions and charities will be minimal. They believe that donors will continue to give to educational institutions, particularly since studies show that donors' motivation to give for a cause outweighs tax incentives for giving. 

Opponents of proposals to limit the value of the charitable deduction argue that such proposals increase the cost of giving for many donors which affects the timing, size and form of charitable gifts. The charitable deduction is different from other deductions, opponents say, because it encourages people to voluntarily give away their money for the benefit of others. And studies show that caps, floors and other limitations will lead to a decline in giving to charitable organizations, including educational institutions. 

Updated November 17, 2017