Charitable Giving Is Good. Be Smart About How to Encourage It

This post first appeared on March 23, 2022 at AEIdeas. AEIdeas is a public policy blog from the American Enterprise Institute (AEI).

By Alex Brill and Grant M. Seiter

In 2020, Americans’ individual charitable giving reached $324 billion, a record high and a 2.2 percent increase from 2019. While the pandemic imposed great costs on our society, many households shared their resources with others, including religious, educational, and human service organizations. For many reasons, giving is a good thing and our society is better for it. Encouraging people to give is also a good and worthy objective, if done well. Unfortunately, lawmakers currently are pursuing a tax incentive for charitable giving that is poorly targeted.

In 2020 and 2021, as part of its response to the COVID-19 pandemic, the federal government allowed a capped above-the-line deduction for non-itemizing taxpayers for charitable donations up to $300 in 2020 and $300 for single filers and $600 for married couples in 2021. Typically, only taxpayers who itemize their deductions can deduct charitable contributions, but this policy covered giving by all taxpayers. Now, Senate tax writers from both parties seek to bring this expired provision back.

While well-intentioned, the temporary above-the-line charitable deduction is unwise tax policy. It is a windfall gain for all of the taxpayers who would make $300 (or $600) contributions in the absence of the deduction, and it fails to incentivize additional giving above these very low thresholds. According to the Joint Committee on Taxation, these policies cost $2.9 billion for 2021. A well-designed policy would encourage more households to give and incentivize increasing contributions for those already giving. Fortunately, this better policy only requires a simple change to the current proposal: an above-the-line deduction without a cap

Read the full post at AEIdeas.