December is the make-or-break month for nonprofit organizations, houses of worship and other charities dependent on Americans’ year-end giving. This year, some Americans are expected to add in some of next year’s gifts, too, since after 2017 charitable spending may come with an extra price.
Religious givers — more generous than the average American — are among millions of donors who face decreased tax incentives on their contributions under the early versions of tax bills in Congress.
That’s bad news for houses of worship as well as local charities that religious givers tend to support as generously or, in some cases, more so than their secular neighbors.
The House and Senate tax plans would roughly double the standard deduction from $12,700 for married couples filing jointly ($6,350 for singles) to $24,000. By shielding the first $24,000 of household income from taxes, it would also dramatically reduce the number of American families who itemize deductions for breaks on things such as medical bills, mortgage interest and charitable deductions.
This change has the potential to affect middle-income families, according to Una Osili, professor of economics and associate dean for research and international programs at the Indiana University Lilly Family School of Philanthropy. She estimates roughly 30 million households making between $50,000 and $100,000 will be less likely to itemize their deductions on their taxes. For those people, their charitable giving will effectively be taxed.
Households whose itemized deductions total less than the new standard deduction would simply take the standard deduction regardless of their level of charitable giving. To claim a tax deduction while they can, Osili said some households may take some of next year’s giving and make donations before the end of this year.
It is difficult to say exactly how these changes will affect particular families. Households at the low end of the range, for example, who give generously, recently bought a home, and also had unusually high medical bills might still itemize. Households at the higher end of the range who give less and have no medical bills or other itemizations may opt for the standard deduction.
Giving is expected to decline
But it’s clear that this will have significant repercussions on congregations, charities and other nonprofits. According to a report by the Lilly Family School of Philanthropy, itemizers are much more likely to donate to charitable causes. The study found that “83 percent of itemizers reported donating any amount of charitable giving at all, compared to 44 percent of non-itemizers. In fact, non-itemizers contribute less than 20 percent of total giving.” Moving 30 million households from “itemizers” to “non-itemizers” will have a measurable impact on donations.
Osili predicted at least a $13 billion drop in charitable giving if the new standard deduction becomes law. As the bill takes shape, other estimates are rising. The Independent Sector, a consortium of nonprofits groups, now says: “Adoption of the House bill will result in only 9 percent of taxpayers choosing to itemize and able to claim the charitable deduction. This shift will result in a $12–$20 billion decline in charitable giving each year.”
Because this shift in incentives to donate will affect middle-income Americans rather than those in higher-income brackets, who are likelier to continue to itemize, the decline will hit the kinds of charities middle-income Americans support.
“They tend to support local charities, congregations and basic needs organizations,” said Osili. Those charities would likely be more affected rather than arts organizations and educational institutions favored by the wealthy.
“Many people learn about giving and give because of the needs they hear about in congregations,” she said. This may be partly why religious givers also contribute generously to non-religious causes, which will now likely become hard hit by the tax changes.
A report by Giving USA on religious giving found that “62 percent of religious households give to charity of any kind, compared with 46 percent of households with no religious affiliation.”
That generosity shows. Giving to religion amounted to 32 percent of all charitable giving in 2016, a total of $122.94 billion. (The next-highest nonprofit sector was education, which received $59.77 billion in 2016 gifts.)
Giving to faith-based organizations in other sectors such as education, health care, international or social services are counted within those sectors, so religious giving amounts to much more than the total attributed to religion.
Unfortunately, the tax bill will certainly reduce religious donors’ giving, said Jerry Bowyer, chief economist for Vident Financial, a principles-based asset manager with mostly Christian clients.
“It’s great to cut taxes, but it isn’t truly a part of the conservative tradition to shrink the state and also to shrink the private sector, which should fill in for the state,” Bowyer said.
Since conservatives tend to believe that private charity works better than government welfare, “a genuinely conservative plan should not reduce incentives for private charity,” he stated.
Even though he believes most giving is motivated by a desire to do good rather than a tax benefit, Bowyer sees the Republican tax plan reducing the incentives to give by increasing the cost of donating, and that will have a negative impact.
How Christian charities are responding
Charities and organizations representing religious givers aren’t happy with the tax changes being debated in Congress.
“World Vision is pleased both the House and Senate tax bills preserve the charitable deduction with no limits or restrictions for those who itemize,” says Robert Zachritz, vice president of advocacy and government relations for World Vision, a Christian humanitarian organization raising more than $1 billion in 2016 in the United States. “World Vision also supported efforts in Congress to expand this deduction for those who do not itemize and wishes this provision was included. It is critical that the tax code preserve the culture of giving for the common good in the U.S.”
The National Christian Foundation, which provides donor-advised funds — a donation vehicle that tends to appeal to wealthier donors — is urging its members to lobby Congress to make charitable deductions “universal.” Their goal is to make charitable contributions deductible, regardless of the tax code’s standard deduction.
“We don’t think that anybody should have their charitable giving taxed,” David Wills, the foundation’s president emeritus, said in a blog post after meeting with Congress and Vice President Pence on the issue. “America has a rich history of charitable giving, and the universal deduction could help preserve our unique legacy of generosity.”
The foundation worries that if the charitable deduction applies only to a percentage of the wealthiest Americans it will eventually be cut entirely — then charities of all kinds would feel the pinch.
Rob Moll is an author and Christianity Today editor at large.
Correction: An earlier version of this story misspelled the name of Jerry Bowyer in some instances.