States across the country are scrambling to determine the impacts of the new federal tax law passed by Congress in December. Here’s what we’re seeing and hearing right now:
The United Philanthropy Forum recently attended a meeting of the Charitable Giving Coalition (CGC), a group of philanthropy and nonprofit organizations dedicated to preserving the federal charitable giving incentive. The primary focus of the discussion was how CGC members think the new law will impact giving and how to move forward. Although several studies have estimated that the law will result in significant drops in giving, participants agreed that there are a lot of unanswered questions about what will actually happen and that we won’t have hard data for at least 12-18 months. Among the critical unanswered questions:
- Will there be major variations in impact by state? It’s possible that the new law will cause the number of itemizers to drop much more dramatically in some states (such as low-tax states) than in other others (such as high tax states), so that could lead to dramatic differences in how much giving is impacted, state by state.
- Will there be major variations by types of nonprofits? It’s possible that the types of donors who will decrease giving the most due to the new law (i.e. people at the lower end if the income spectrum) give to different types of nonprofits than those donors who will be less impacted by the law (i.e. wealthier taxpayers), resulting in certain nonprofit subsectors being impacted more negatively than others in terms of charitable donations.
- Will taxpayers “bundle” their donations? Some nonprofits are wondering if the new law might motivate donors to “bundle” their donations, alternating years where they give a larger amount of donations (to push them above the standard deduction and thus let them itemize) with years where they give fewer donations (saving up for the next year).
- How much will the number of itemizers actually drop? Last year several studies estimated that the tax reform proposal would result in the percentage of taxpayers who itemize dropping from 33% to about 5%, resulting in big drops in contributions as millions of taxpayers no longer have a tax incentive for giving. But a new study by Howard Gleckman at the Tax Policy Center estimates that the figure will be about 14%, which is still a 56.7% drop in the number of itemizers (from 37 million to 16 million). Gleckman estimates that the share of middle-income households claiming the charitable deduction will fall by two-thirds, from about 17% to 5.5%. He expects the tax bill to cause a drop in charitable giving of about 5%. But we will have to wait to see what actually happens.