Taxes in America are complicated enough that fiddling with them is bound to have unexpected consequences. And although President Trump has promised to simplify the system, his proposals could also result in fewer contributions to churches — including many of his political allies.
GOP tax proposals could reduce donations to congregations by nearly 5 percent, a new, nonpartisan analysis has found. Although the Trump administration has said it will protect the deduction for contributions to churches and other charities in any overhaul of the tax system, other proposals Trump has advanced would combine to make giving more expensive.
Earlier this month, Trump signed an executive order to give churches financial protection from tax authorities, but any legislation he signs would likely have a much more serious effect on the finances of congregations of all faiths.
The result could be financial trouble not only for the collection plate but also for a wide variety of other charitable organizations — community clinics, symphonies, food banks, universities and more.
“A lot of charities are run on pretty slim margins, so if you take a 5 percent hit, that’s pretty significant,” said Patrick Rooney, an economist at Indiana University's Lilly Family School of Philanthropy, which published the report Thursday.
The charitable deduction, which allows taxpayers who make donations to reduce their tax bills, has been part of the U.S. tax system for 100 years. Americans donated an estimated $373 billion in 2015, and more than half of the money contributed goes to congregations (excluding religious schools, hospitals and similar organizations), according to Rooney.
Trump's plan would reduce the financial appeal of the charitable deduction in a couple of ways. First, the plan would increase the standard deduction, which taxpayers can claim instead of itemizing other breaks, including the deduction for charitable donations.
Because the standard deduction would become more attractive, many taxpayers would choose to claim it rather than the charitable deduction. As a result, they would receive no benefit for making donations when they file their taxes, and some would give less to charity.
At the same time, the charitable deduction would become less valuable for many taxpayers who do claim it.
When taxpayers claim deductions such as the one for charity, they reduce the income on which they have to pay taxes by the amount of the deduction. As a result, if that income is taxed at a reduced rate, their savings will be reduced as well. Trump has pledged to cut the uppermost marginal tax rate on ordinary income from 39.6 percent to 35 percent.
These changes would have a somewhat greater effect on giving to congregations (a 4.7 percent reduction) than on contributions to other groups (4.4 percent), the analysis shows. Using data on giving from detailed national surveys, the report found that those who give to congregations appear to be more sensitive to changes in the tax system than those who give to other organizations.
That might be because people who tithe regularly are better informed about what their donations mean for their tax bills, Rooney suggested.
Republicans have argued that their plans would stimulate economic growth, which could result in increased donations to charity if Americans had more money to give. Independent economists, however, have been skeptical of these promises. They note that GOP plans to reduce taxes would force the federal government to borrow more to make up the difference and that the additional burden from the national debt could outweigh any benefits for the economy.
Trump won the presidency in part with the support of religiously conservative voters, many of whom were eager to give a Republican a chance to fill a vacancy on the Supreme Court. Eighty percent of evangelical voters cast ballots for Trump, exit polls show — the greatest margin of victory for a Republican among that group since 2004.
The White House said that the order Trump signed would promote religious liberty. The order was supposed to remove the threat of tax authorities revoking a religious organization's favored status in the tax system if its leaders spoke out about politics — which is often not permitted for charities that accept tax-deductible donations.
Legal experts, though, suggested that Trump's order might prove to be mostly symbolic, with few practical consequences.
“For too long, the federal government has used the power of the state as a weapon against people of faith, bullying and even punishing Americans for following their religious beliefs,” the president said at the time.