One of the defining achievements in President Trump’s first year back in office will be tested through the upcoming expiration of his 2017 Tax Cuts and Jobs Act and it could have sweeping implications for philanthropy and those in need.
As policymakers negotiate tax reform, they should be cautious about adopting policies that carve up nonprofits or throttle charitable giving. Or else, the people the charitable sector serves will suffer the consequences.
In 2023, Americans gave a total of $557.16 billion. In 2024, donations in the 24-hour Giving Tuesday period alone totaled $3.6 billion in the U.S. Americans give for various reasons, including out of a sense of altruism and civic duty, religion and church attendance, economic prosperity, personal connections and for tax incentives.
Although we often think of corporate or foundation giving when we think of philanthropy, the lion’s share of charitable donations came from individuals. Corporations gave $36.55 billion (7%) and foundations granted $103.33 billion (19%) of gifts in 2023. But individuals donated $374.4 billion or 67% of all charitable giving to charity.
We know there is a fundamental link between tax policy and charitable giving and tax policy affects the timing of gifts and giving behavior. Americans have more funds to give away when they can keep more disposable income. Analysis by Philanthropy Roundtable of 50 years of charitable giving confirms for every 10% decrease in income, a donor decreases charitable giving by 7% and vice versa.
Many donors who itemize taxes are considering their tax liabilities when making year-end tax-deductible gifts to their favorite charities. A whopping 10% of annual giving occurs on the last three days of the year.
One research study found donations to arts and culture, environmental and human services organizations fell the year following the TCJA’s enactment as fewer taxpayers itemized deductions because the standard deduction was doubled. But any decline in donations has since recovered, driving giving to record levels.
Annually, the top destination for charitable dollars is houses of worship and religious organizations, followed by human services. After TCJA was passed, donations to religious congregations remained relatively stable, reflecting the faith motivation behind giving for many Americans. That speaks to the power of American generosity that is affected, but not primarily driven, by tax policy.
Any provisions that raise the overall tax burden are a threat to charitable giving. Inaction by Congress on expiring provisions may force the charitable sector to lose critical donations. For example, the deduction limit for cash contributions will fall from 60% of adjusted gross income (AGI) to 50% of AGI. These limitations will likely marginally reduce the incentive to give, especially among higher-income individuals who still itemize. Also, the increase in the estate tax exemption is set to expire, which is likely to impact charitable bequests and donor estate planning.
There is also concern Congress may look to the charitable sector to pay for the extension and even expansion of tax incentives. Some of the more sinister proposals from the left, such as wealth taxes on individuals and foundations and taxing unrealized capital gains, are off the table, we hope, following the election results.
However, there have been calls for capping the charitable deduction for the highest earners, taxing endowments of educational institutions and preventing private foundations from using donor-advised funds to advance their charitable giving.
Such policies could lead to unintended consequences. Mega donors may cut major gifts to organizations serving the poor or investing in workforce development. Smaller colleges—not beset by the systemic problems such as DEI bloat, viewpoint intolerance and antisemitism plaguing Ivy League schools—may get slapped with unwieldy tax bills. And fewer dollars from the popular giving vehicles will go to charities.
Policymakers are poised to advance economic growth that drives the prosperity fueling the charitable sector. Through the tax code they will guarantee continued tax relief for Americans as households and charities battle inflation. They can also reinforce our nation’s commitment to the health and vibrancy of civil society through smart tax policies and not undermining the charitable sector.
