Charitable tax deduction benefits wealthy, new rules expand access
A new article examines how the charitable tax deduction primarily benefits wealthy Americans, with over nine in ten taxpayers unable to claim it because they do not itemize deductions. Over 80 percent of millionaires and multimillionaires receive a tax benefit for each dollar donated, while the federal treasury loses upward of $65 billion annually from the deduction. The 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, causing the number of households claiming the charitable break to drop from 37 million in 2017 to 16 million in 2018. The share of middle-income families claiming the benefit fell from 17 percent to just over 5 percent. A recent tax bill signed by President Trump will allow non-itemizers to deduct up to $1,000 in charitable contributions ($2,000 for joint filers) starting next year. Researchers estimate this change could lead 8 million more households to give, generating $4.39 billion in new annual donations, but may also reduce overall giving by $5.67 billion because wealthy donors may give less. The article notes that over 41 cents of every charitable dollar goes to private foundations or donor-advised funds, which can delay distributions to working charities.
What’s reported
The US Treasury loses upward of $65 billion in revenue annually to charitable deductions.
Over nine in ten Americans will not claim the charitable tax break this year because they do not itemize.
Over 80 percent of millionaires and multimillionaires receive a tax benefit for every dollar donated.
The 2017 Tax Cuts and Jobs Act doubled the standard deduction, causing household claims to fall from 37 million in 2017 to 16 million in 2018.
Middle-income families claiming the deduction fell from 17 percent to just over 5 percent after 2017.
High-income households earning $216,800 to $307,900 claiming the deduction fell from 78 percent to 40 percent.
Researchers estimate the 2017 law led to a $20 billion decline in charitable giving.
President Trump’s One Big Beautiful Bill allows non-itemizers to deduct $1,000 ($2,000 joint) in charitable contributions starting next year.
The change could lead 8 million more households to give, generating $4.39 billion in new annual donations.
The same bill made the deduction less lucrative for corporations and top earners, potentially reducing overall giving by $5.67 billion (1 percent drop) because wealthy donors may give less.
The top 1 percent of households account for one-third of all charitable giving.
Michael Bloomberg gave about $4.3 billion to charity last year, receiving a potential $1.6 billion tax break at the 37 percent rate.
Over 41 cents of every dollar donated in the US goes to private foundations or donor-advised funds.
Three-quarters of Americans gave to organizations such as food banks or animal shelters in the past year, according to an AP-NORC poll.
70 percent of Zoomers and 57 percent of millennials say they would give more if they could write it off on taxes.
Conflicting accounts
The article presents differing views on the charitable deduction’s social value. Proponents, including Warren Buffett, argue that philanthropic spending is more beneficial than reducing government debt, while critics like tax lawyer Ray D. Madoff contend that philanthropic money often goes to intermediaries that delay distributions and may not serve public needs better than tax dollars.
Open questions
The net effect of the new tax provisions on total charitable giving remains debated, with researchers predicting a reduction in overall donations despite an increase from new donors.
Misconceptions
The article addresses the misconception that the charitable tax deduction equally benefits all taxpayers, clarifying that over 90 percent of Americans cannot claim it. It also challenges the assumption that expanding the deduction will increase total giving, noting that wealthy donors may reduce contributions.
Key figures
Michael Bloomberg, billionaire philanthropist
Warren Buffett, billionaire investor
Ray D. Madoff, tax lawyer and author
President Donald Trump
The Generosity Commission, advocacy group
Sources: vox.com
