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Charitable Gifts Slip in First Year Under New Tax Law

Wednesday, June 19, 2019   (0 Comments)
Posted by: Kristen Merrifield
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Charitable Gifts Slip in First Year Under New Tax Law

Deduction changes, stock-market dip countered effect of growing economy, new report says

Donations tend to rise when the economy and stock market are strong and when natural disasters occur. PHOTO: MARK MORAN/THE CITIZENS’ VOICE/ASSOCIATED PRESS

By 

Richard Rubin

Updated June 18, 2019 3:00 pm ET

WASHINGTON—Charitable donations by individuals dropped last year by the most since the financial crisis as tax-law changes and a late-year stock-market dip dampened the effects of the growing economy, according to a report released Tuesday.

Giving by individuals declined 3.4% in inflation-adjusted dollars to $292 billion, after four straight years of growing by at least 2.4%, according to the annual Giving USA report. Overall, giving was down 1.7% in inflation-adjusted dollars, with the decline in individual donations partially offset by corporations and foundations.

Because tax-return data for 2018 aren’t yet available, the report is among the most comprehensive looks at one of the effects of the tax law that Congress passed in late 2017, and its findings mirror other analyses that found flat giving despite rising incomes.

“It was, in many ways, a very unusual set of circumstances,” said Una Osili, a lead researcher on the report, which is published by the Giving USA Foundation and written by the Indiana University Lilly Family School of Philanthropy.

The law cut individual taxes, but it also dramatically changed the incentives for charitable giving in ways that left nonprofit executives worried about what would happen.

Most importantly, Congress nearly doubled the standard deduction to $24,000 for married couples and $12,000 for individuals. The move reduced the number of households that would benefit by itemizing their deductions, including charitable donations. Far fewer people now itemize their deductions, giving them less of a direct federal tax incentive to make donations. About 16 million households were expected to use the deduction in 2018, down from 37 million under the prior law, according to the Tax Policy Center, a Washington group run by a former Obama administration official.

“We expected a moderate decline in giving and we seem to be seeing that,” said Eugene Steuerle, a Tax Policy Center scholar who studies nonprofits.

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As Republicans were writing the bill in 2017, they argued that the effects on giving wouldn’t be very significant, because taxpayers would have more money in their pockets to be able to donate to charity.

Those who still have an incentive to donate tend to be higher-income households. The top 1% of households now gets 56% of the benefit of the itemized deduction for charitable donations, up from 38% before the 2017 tax law took effect, according to the Tax Policy Center.

According to the Giving USA study, religious and educational groups experienced declines exceeding 3% in inflation-adjusted dollars while international and environmental groups saw donations rise.

Tax incentives, of course, aren’t the only reason why people give to charity, and many people who take the standard deduction give even though they can’t deduct any of those contributions.

“It’s challenging to disentangle the effect of each specific factor,” Ms. Osili said.

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Donations tend to rise when the economy and stock market are strong and when natural disasters occur. The December 2018 decline in the stock market, which came right as people often make significant year-end contributions, may have led some people to reduce or delay their donations.

“The timing couldn’t have been worse for charitable giving at the end of the year,” said Rick Dunham, who runs a nonprofit consulting firm in Plano, Texas, and is chairman of the Giving USA Foundation.

It is too early to tell whether the 2018 decline will turn into a longer-term trend. Some taxpayers may have front-loaded 2018 donations into 2017 in advance of the tax law, making last year a unique blip. On the other hand, many taxpayers may not have fully grasped the consequences of the tax law until they filed their 2018 tax returns in early 2019, which could cause the decline to continue as people adjust their giving patterns.

“We think that we’re really lagging behind when we’re really going to see the impact in 2019,” said Kristen Merrifield, CEO of the Alliance of Arizona Nonprofits, who said some charities in the state are already shrinking their programs or considering reductions. “A lot of nonprofits, they rely on those low- to middle-income givers.”

Write to Richard Rubin at richard.rubin@wsj.com



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