Policy

Charities Feeling Flush Despite Tax Law Change

Small gifts are down, but big donors have more than made up for it

Charities argued against doubling the standard deduction, but so far the change hasn’t slowed down giving. Above, President Donald Trump, flanked by Republican lawmakers, celebrates the 2017 tax law. (Chip Somodevilla/Getty Images)

Year-end holiday giving is make-or-break time for America’s charitable sector. Donors who give now may feel compelled by the spirit of the season, but many of them also know that they can soon write off their gifts on their taxes and recoup a portion of their money.

But that latter incentive affects fewer people this year, thanks to a provision in the 2017 tax law that roughly doubled the standard deduction. As a result, the Congressional Budget Office projects that 31 million fewer households will itemize their taxes next year, eliminating their tax incentive to give to charity.

Nonetheless, American generosity appears to be a more powerful force than economic incentive. Charitable giving was up by 2.6 percent during the first nine months this year compared to the same period in 2017, according to the latest quarterly report from the Fundraising Effectiveness Project of the Association of Fundraising Professionals and the Center on Nonprofits and Philanthropy at the Urban Institute. This is especially notable because the project found, at the end of September 2017, that fundraising lagged 4 percent behind 2016’s rate. Americans, however, were generous in the final quarter of 2017, and the year-end 2017 figure ended up being 4 percent higher than 2016’s.

If that pattern holds this year, 2018 will have been a blockbuster year for charities. It would also call into question the arguments charities employed to make their case against the 2017 law’s increase in the standard deduction. 37charity-graphic Independent Sector, a group that represents charities’ interests in Washington, commissioned a May 2017 study by the Indiana University Lilly Family School of Philanthropy that found a slightly smaller increase in the standard deduction than the one that ultimately became law would prompt Americans to give 4 percent, or nearly $11 billion, less to charities.

If charitable giving increases in 2018, it will also reduce the case for legislation like that introduced in the House in May by Republican Christopher H. Smith of New Jersey and Democrat Henry Cuellar of Texas that would allow all Americans to deduct charitable donations from their incomes at tax time.

Still, the tax law does seem to be having an effect. The Fundraising Effectiveness Project found the number of donors is down more than 4 percent. Small donations of less than $250 and mid-level donations between $250 and $1,000 are down slightly. Small and mid-sized donors are the ones most likely to no longer itemize their taxes.

But gifts from big donors, who gained from the tax law and will mostly continue to itemize, have more than made up for it. Their donations are up more than 3 percent through September.

Even if it turns out that large donors are making up for the loss in small ones, Elizabeth Boris, a fellow at the Center on Nonprofits and Philanthropy at the Urban Institute, sees reason to be concerned.

Charities that rely on few donors can be badly hurt if one pulls out, while donating and volunteering tend to go hand-in-hand, she said.

“It’s a civic engagement issue, so I don’t think it’s a good sign,” she said.

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