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Kelly Russell

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By giving greater relief to the highest earners, the charitable deduction disadvantages charities which protect the most vulnerable

August 22, 2018

By the end of this month, the Internal Revenue Service will have received about 140 million individual tax returns. Many of those who have filed this year will have hoped to see greater tax relief than they have years past. The tax legislation passed by Congress in December 2017 promised to lower the tax burden for a large swath of American households. One way it does this is by doubling the standard deduction—the baseline deduction in taxable income every taxpayer is eligible to take. Taxpayers are celebrating the change, but charitable organizations are decidedly less enthusiastic about it.

Charities are aggrieved because a larger standard deduction will likely reduce the number of taxpayers who itemize their deductions (rather than take the standard deduction) —and the number of taxpayers who take the tax deduction for charitable contributions (which I refer to as the charitable deduction). The charitable deduction is only available to itemizers, currently about a third of taxpayers. It works by lessening the cost of charitable gifts proportionally by one’s marginal income tax rate; i.e., the after-tax cost of charitable gifts declines as one’s income bracket increases. Now that the standard deduction has doubled in size, some taxpayers who itemized in years past will likely take the standard deduction this year and will no longer have a tax-related motivation for making donations.

This means we might see a dip in charitable giving. Charities have not hesitated to register their displeasure about this. As the tax legislation began to take form last fall, charities began to express their concerns that a diminished itemizer class would strip them of their ability to meet basic needs. In a statement to New York Times columnist Ann Carns, Feeding America executive Diana Aviv explained how a potential decline in charitable giving would “devastate [their] ability to provide food assistance;” Orvin Kimbrough of the United Way of Greater St. Louis voiced his concerns in similarly stark terms: “This is about people’s lives.”

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