Donations to charity dropped last year despite a strong economy. Was the tax law to blame?

Money is dropped into a kettle during a 2018 Salvation Army charity event in Augusta, Ga. Charitable giving has fallen for the first time since the Great Recession, a report says. (Michael Holahan/Augusta Chronicle/AP)

Donations to charities dropped an inflation-adjusted 1.7 percent in the United States last year, despite a strong economy, according to a report highlighting changes to federal tax law and continuing trends in who makes charitable gifts.

The estimated $427.71 billion donated to U.S. charities in 2018 represented a growing share of gifts from foundations and corporations, according to a Giving USA report released Tuesday, which is considered the most comprehensive annual study of philanthropy.

The overall decrease is the first drop in charitable giving in the country since the Great Recession, the organization said.

Corporate donations increased 2.9 percent last year. Foundation gifts jumped 4.7 percent. But giving from individuals — the traditional bread-and-butter of American charities — dropped 3.4 percent last year.

“This was quite a widespread change,” said Una Osili, an economics professor and an associate dean at the Indiana University Lilly Family School of Philanthropy, which helps produce the Giving USA report.

Many charities had warned that individual donations would decline under President Trump’s federal tax overhaul, which took effect last year. The tax plan slashed corporate tax rates, and some individual ones, but it also stopped millions of Americans from qualifying for the charitable tax deduction.

Supporters of the tax changes said increased economic growth would more than make up for the deduction’s loss.

But donations dropped in inflation-adjusted terms last year and stood essentially flat with a 0.7 percent rise in real terms — even as the economy continued to grow.

In comparison, charitable donations in 2017 grew 3 percent in inflation-adjusted terms over the previous year.

Osili said stock market turbulence at the end of 2018 also might have hurt charitable donations.

There was also a change in where the donations flowed in 2018.

Gifts to international affairs groups surged 7 percent. Environment and animal organizations saw gifts increase 1.2 percent.

But giving to religious organizations dropped 3.9 percent. And donations to groups such as United Way — considered a public-society-benefit organization — dropped by 6 percent.

“There really is no other explanation for these numbers than changes to the tax law,” said Steve Taylor, vice president for public policy at United Way Worldwide.

Taylor said he expects the drop in donations to continue as people continue to change their giving habits in light of the new tax law.

“This is just the beginning,” he said.