Last week, Giving USA released its initial estimates of 2019 giving levels in the Giving USA 2020 report. At first glance, the numbers look promising. Total charitable giving rose to $449 billion and individual giving rose to about $309 billion, both the second highest amounts on record. However, when you consider the context of these numbers and current trends and challenges, the increases are somewhat underwhelming.
Let’s start with a bit of background.
In 2017, as lawmakers were considering sweeping changes to the tax code, the charitable sector was rightfully concerned that if the tax incentive to give to charity was taken away from about 20 percent of taxpayers, charitable giving from those taxpayers would decline. We certainly do not believe that the tax incentive alone determines whether a taxpayer donates – we know charity is largely driven by altruism – but we do know that it affects how much and when a taxpayer gives. However, lawmakers assured the charitable sector that as the economy grew, so would charitable giving – as it always has.
And then those sweeping changes were made, and the charitable deduction became available only to about 11 percent of taxpayers who continued to itemize their taxes. In the year the tax law was passed (2017), we saw record levels of charitable giving, but in the year following the changes to the code (2018), we saw not only a decrease in giving, but also the first time in 10 years that charitable giving lagged behind economic growth. There were many hypotheses about why this happened – taxpayers taking advantage of a higher deduction before the tax law went into effect; a volatile market toward the end of 2018; or perhaps because they now didn’t have a tax incentive to give.
Whatever the reason, or combination of reasons, is for the decline in 2018, taking one data point in isolation can be misleading. Just like the drop in 2018 didn’t certify that tax reform decreased charitable giving, the increase in 2019 doesn’t certify that tax reform didn’t harm charitable giving. Which means we need to look to trends.
At the same time, lawmakers were changing the tax code and increasing the standard deduction, researchers and nonprofit leaders were noticing a concerning long-term trend of who was giving to charity. In short, while giving was increasing, the number of taxpayers donating was declining for more than 10 years, meaning those who continued to give were giving more and more each year, but many Americans were ceasing donating altogether. This decline, which has persisted after tax reform, signals a changing culture of giving, where Americans no longer participate in civil society in the ways they used to. And that continues to concern us.
And then there is COVID-19 and the associated economic fallout, which is expected to have a huge impact on charitable giving. Initial numbers are showing a 6 percent decline in charitable giving in the first quarter of 2020 compared to the same time in 2019, in addition to a 5.3 percent drop in the number of donors over the same time. And a recent Gallup poll suggests the number of Americans donating is at an all-time low.
Now the question is, what can be done? There are likely a lot of answers to that question, but one straightforward way to increase both charitable dollars and the number of givers is to make the charitable deduction available to all taxpayers, regardless of whether they elect to itemize. The Senate elected to do this in a limited way in the CARES Act in response to COVID-19 when they created a temporary universal charitable deduction for cash gifts up to $300, and a group of six senators is going further with a bill introduced this week that would expand that cap and extend the availability of the UCD. So, the momentum hasn’t stopped.
Let’s be clear – an increase in charitable giving is welcome news to us at ACR and many of our friends in the charitable sector. However, the underlying trends and challenges remain troubling, and we’ll continue to advocate for an expansion of the charitable deduction to all taxpayers to ensure all Americans have an equal incentive to participate in civil society.
