Trump Tax Plan Could Reduce 2017 Charitable Giving by Up to $26.1B
As America alternately celebrates and copes with the results of the country's most grueling and contentious presidential election since its birth, nonprofits are already looking ahead. Wednesday, we talked immediate reaction to a Donald Trump presidency. Today, we're looking at the numbers.
They don't look great.
The Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, last week reported on Trump's and Hillary Clinton's proposed tax plans and their possible impacts on charitable giving. The center estimated that Clinton's plan — now moot — could reduce individual giving by 2 to 4 percent, or $6 to $11.7 billion. Trump's plan, the one that now matters, could be far worse, potentially reducing 2017 charitable giving by 4.5 percent to 9 percent — or $13.5 billion to $26.1 billion.
The effects would be indirect, but Trump's tax plan creates three separate avenues by which giving could drop, the Tax Policy Center reported. The first, a reduction in marginal tax rates, would increase after-tax costs for charitable donations. The site explained:
If you give away $100, you don’t pay tax on that $100 of income, so the after-tax cost of the donation for someone in today’s 39.6 percent top tax bracket is only about $60 — the $100 gift minus $39.60 in tax savings. But by reducing the top rate to 33 percent, Trump would raise the after-tax cost of that $100 gift to $67.
The second, an increase in the standard deduction to $15,000, would lead to fewer taxpayers itemizing:
People who stop itemizing can no longer deduct their charitable contributions and, thus, lose the tax break. In 2017, 27 million of the 45 million who now itemize would opt for the standard deduction, a decline of 60 percent.
And the third, a lower cap on itemized deductions, could eliminate tax incentives for some charitable givers:
IRS data indicate that in 2014, taxpayers with more than $1 million in adjusted gross income (AGI) deducted an average of $165,000 for charitable contributions and another $260,000 for state and local taxes. Since the state and local tax deduction alone would exceed Trump’s proposed cap on itemized deduction, many high-income taxpayers would lose their tax incentive to give to charity.
The changes would affect high-income taxpayers the most. Lower-income households, the Tax Policy Center said, would likely not change their giving habits. The caveat, of course, is that Trump's proposed tax cuts primarily benefit the wealthy — he projected average 2017 cut for the top 1 percent is $122,400 — which could offset some of the damage to charitable giving, or even increase giving in the long-run. But it's too early to tell.
It's also worth noting that Trump has called for $1 trillion in federal budget cuts during the next decade — an average reduction of $1 billion a year. Social Security, Medicare, Medicaid and defense are the only programs Trump said are exempt so far, leaving all other programs on the hook for cuts. It's unclear exactly what that means for nonprofits that rely on federal funding; but for now, we can fill in the blanks.