Did the Universal Charitable Deduction Make a Difference?


The Impact of the Universal Charitable Deduction

MacKenzie Scott’s newest $2.7 billion giving bonanza stole the spotlight last week, but it’s worth remembering that most nonprofits keep their doors open thanks to small, dependable gifts from loyal donors. They are the donors Congress had in mind when it included in last year’s stimulus bill temporary provisions allowing single people to deduct up to $300 and couples up to $600 in charitable gifts even if they don’t itemize their taxes. It was a change nonprofit groups have lobbied for long and hard.

So how did those universal tax breaks affect giving last year? The answer remains unclear, my colleagues Dan Parks and Eden Stiffman report.

Charitable giving grew by just 1 percent in inflation-adjusted dollars in 2020, according to “Giving USA,” whose latest estimates were issued last week. Without Scott’s multibillion-dollar contributions, individual giving would have decreased by nearly 0.8 percent.

The Fundraising Effectiveness Project tracked a 28 percent increase of $300 gifts on December 31 — exactly the maximum amount a donor can take using the universal charitable deduction. That report analyzed giving details from 2,496 nonprofit organizations based in the United States that raise $100,000 to $10 million annually.

It also found the overall number of donors in 2020 grew by 7.3 percent over 2019. Some philanthropy experts viewed that as a positive sign. From 2000 to 2016 alone, 20 million households stopped giving to charity.

But experts caution against pointing to the tax break as the cause for last year’s growth.

“We’ll need a lot more time to actually see the data,” says Una Osili, associate dean for research and international programs at the Lilly Family School of Philanthropy at Indiana University. She sees the current deduction as a step in the right direction for how it recognizes the generosity of donors who would not otherwise have received tax breaks for their charitable gifts.

But at the current $300 level, it’s not necessarily going to lead to big changes because of the size of the average gift from donor households, she says. The average amount given to charity per U.S. donor household was $2,763 in 2016, the latest year for which that data from the Lilly School’s Philanthropy Panel Study is available. The median donor household gave $1,000 that year. That study draws from a representative sample of U.S. households.

“Certainly there were households that gave $300 gifts because of [the deduction],” says Laura MacDonald, chair of the Giving USA Foundation. But many households that took advantage of it would likely have given anyway, she says. “At that point, all we’ve done is diminish the Treasury because those gifts would have been in the charitable economy anyway.”

The incentive may have raised the profile of charitable giving or reminded people that it is something they should do, MacDonald says, but in the long run, a $300 deduction is not large enough to have a meaningful impact on overall giving. In 2020, giving from individuals represented 68.8 percent of all philanthropy, according to “Giving USA” estimates. But much of that was made up of mega-donations from the wealthy.

It would take approximately 19 million $300 gifts to make up for MacKenzie Scott’s billions in contributions last year, MacDonald pointed out.

While the effects of those kinds of small gifts can be dwarfed by the impact of a single MacKenzie Scott-level donor, getting more people involved in giving at any level can produce bigger results down the road as their income and giving potential increase, notes Nathan Dietz, senior researcher at the University of Maryland’s Do Good Institute and an adviser on the “Giving USA” methodology.

Also, it’s unfair to assess the true potential of a write-off for people who don’t itemize with such a low limit, he says. “A much better test would be to have a higher threshold.”

The desire to expand charitable-giving incentives took on added urgency following enactment of the Trump tax cut. That law nearly doubled the standard deduction to $24,000 for married couples and $12,600 for single people. As a result, nearly 30 million Americans no longer itemize their taxes, eliminating any tax incentive for them to give.

Brian Flahaven, vice president of strategic partnerships at the Council for Advancement and Support of Education, agrees with Deitz that a universal deduction “needs to be at a higher level to actually incentivize giving.” His organization is lobbying to increase the maximum deduction for people who don’t itemize to $4,000 for individuals and $8,000 for couples.

Elizabeth McGuigan, director of policy at the Philanthropy Roundtable, an organization that represents predominantly conservative donors, also signaled support for extending the universal deduction.

“‘Giving USA’s” findings are quite impressive, given that charitable giving reached an all-time high during one of the most difficult years in recent memory,” says McGuigan, adding, “Looking ahead to a long recovery for communities nationwide, now is not the time for the government to restrict any of the ways individuals are able to support the charities they care about and those in need.”

Read Eden and Dan’s full story for more takeaways on this temporary tax provision.


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