WASHINGTON – Philanthropy Roundtable published “How Tax Policy Affects Charitable Giving” today, new research that finds for every $1 the U.S. Treasury forgoes in potential revenues, the charitable tax deduction results in $1.30 making its way to public charities.
This study examines 50 years of research on how tax policy affects charitable donations, noting that raising taxes, likewise, shows a reduction in charitable giving. Currently, Capitol Hill lawmakers are debating several expiring tax provisions in the Tax Cuts and Jobs Act (TCJA) that would have significant implications for charitable giving. The research highlights how the TCJA’s tax incentives, when combined with a thriving economy, translates to increased charitable generosity and funds available for nonprofit services.
“Philanthropy forms the bedrock of a vibrant civil society, and the research proves it,” said the paper’s author, Philanthropy Roundtable Director of Policy Research Jack Salmon. “When America’s tax policies encourage more giving to charity, those dollars go further toward helping communities in need than when those same dollars are sent to the IRS. Policymakers should keep that in mind as they construct laws and regulations affecting giving.”
Americans donate over $400 billion annually – $300 billion as individuals and over $100 billion through private foundations. As the paper explains, “Within this altruistic landscape lies a crucial economic reality: charitable giving is not immune to the economic impact and behavioral incentives of tax policy. Indeed, a fundamental question resonates – to what extent does the cost of giving, as influenced by tax incentives, sway the magnitude of charitable donations? This intricate relationship between tax policy and charitable behavior lies at the heart of the concept of tax elasticity of charitable giving.”
Key Findings:
- For every $1 the Treasury forgoes in potential revenues, the charitable deduction results in $1.30 making its way to public charities.
- Charitable giving is sensitive to changes in the tax price, meaning individual donors respond to changes in the “cost” of their contributions, as influenced primarily by tax policies.
- For every 10% increase/decrease in income, a donor increases/decreases their charitable giving by 7%.
As Salmon writes, “Taxpayers demonstrably respond to shifts in policy, and the benefits of the charitable deduction for individual donors and the communities they support, undeniably outweigh any potential loss of revenue.”
