Support the Charitable Act
GIA has been concerned about the impact of changes to the U.S. tax code in recent years that have depressed the amount of charitable giving by moderate-income individuals and families. Charitable contributions from individuals and families of all income levels are critical to maintaining a healthy society and vital to ensuring that national, state, and local community nonprofit organizations can deliver on their missions to serve those in need. Charitable contributions also amplify the benefits to those receiving services from these organizations with some studies showing a benefit of $2.50 for every $1 of tax benefit to the taxpayer.
With this frame, GIA has advocated for changes in the tax code to invigorate charitable giving by moderate-income individuals and families. We have urged Members of Congress to support S. 566, the Charitable Act. This bipartisan legislation, which was introduced by Senators James Lankford (R-OK) and Chris Coons (D-DE), would restore the ability of those who do not itemize on their tax returns to receive a tax deduction for charitable giving. This legislation is essential to reverse the trend of lower charitable giving by more moderate-income individuals and families and ensure that nonprofits can continue to provide valuable services to those in need. We hope you will join us in this effort. We hope you will support your grantees’ advocacy, and raise awareness of the underlying issue this bill is seeking to solve in your larger communities.
To better appreciate the critical nature of this legislation, it is important to understand changes that were made to the tax code in 2017. Congress, and then President Trump, succeeded in passing the Tax Cuts and Jobs Act (TCJA) into law in late 2017. The legislation touched upon many areas of the tax code, including dramatically increasing the number of taxpayers who take the standard deduction thereby reducing the savings such taxpayers would receive for charitable and other deductions.
Depending on individual circumstances, a taxpayer, when filing their taxes, will elect to take the “standard deduction” or “itemize” their deductions. A standard deduction is just that – the same fixed deduction amount for all taxpayers. When a taxpayer itemizes, the individual adds up all their applicable deductions (including chartable deductions) and subtracts that amount from their taxable income to determine their tax burden. For obvious reasons, taxpayers will tend to select the option that reduces their tax burden by the greatest amount.
The TJCA nearly doubled the amount of the standard deduction, dramatically reducing the number of taxpayers that would elect to itemize their deductions. This change has led to a decrease in charitable deductions by those with $100,000 and below in annual income by over $24 billion compared to 2016. Other changes in the bill increased the percentage of charitable gifts that taxpayers could claim against their income. This has made charitable gifts more financially advantageous to the highest income taxpayers. Unfortunately, the net result of these changes has meant that charitable deductions overall through 2020 were still down nearly $20 billion compared to 2016 (the year before the passage of the TJCA).
S. 566, the Charitable Act, would help remedy these shortfalls by providing an additional deduction for individuals who take the standard deduction of up to $4,600 for individuals and $9,200 for joint filers. These deductions would be on top of the standard deduction that these individuals utilize. With charitable giving down, and more concentrated amongst the highest income earners, the Charitable Act incentives giving by moderate income Americans who were most impacted by the 2017 changes.
We hope that others will join our effort to elevate awareness of and action on this legislation. Continued support for charitable giving across the income spectrum is critical to sustaining strong nonprofit organizations that are able to meet people’s needs.
