Key Issues

Tax Matters

February 7 2020

The 2017 tax reform bill, formally known as the Tax Cuts and Jobs Act, has had a negative effect on charitable giving, as predicted by many.  With the standard deduction doubled, and other itemized deductions greatly reduced, the number of taxpayers who itemize deductions has been cut by two-thirds.   Thus, although TCJA preserved the charitable deduction, most people no longer find it advantageous to itemize.  Put more simply, the tax code no longer provides an incentive for 90% of taxpayers to donate to charity.

Latest figures from GivingUSA show that charitable giving by individuals dropped an inflation-adjusted 3.4 percent in 2018, and nearly every type of recipient organization – from religion to education to human services – saw giving decline or stay flat.  Perhaps reflecting the fact that the deduction is now only available to upper income people, the Fundraising Effectiveness Project found that while total giving of gifts of $1,000 or more increased by 2.6 percent in 2018, gifts in the $250 - $999 range dropped by 4 percent, and gifts of under $250 dropped by 4.4 percent.  It has been decades since individual giving decreased at a time of economic growth.

Additionally, fewer Americans are making charitable donations. Indiana University’s Lilly Family School of Philanthropy has found that the percentage of Americans who give has fallen by 13 percent over the past 16 years—from 66 percent in 2000 to just 53 percent in 2016.

Congress can address the decline in giving—and grow charitable giving at the same time—by enacting a universal charitable deduction. Such a proposal would allow non-itemizing taxpayers a deduction for their charitable gifts and increase charitable giving by an estimated $12.2 billion (4.3 percent).   A universal charitable deduction will democratize giving by incentivizing all American taxpayers—regardless of income—to give to charity, thereby ensuring that our country retains a strong and independent civil society.

Current universal charitable deduction bills include H.R. 1260, introduced by Rep. Danny Davis (D-IL), H.R. 651 (Charitable Giving Tax Deduction Act), introduced by Reps. Henry Cuellar (D-TX) and Chris Smith (R-NJ), and H.R. 5293 (Universal Charitable Giving Act), introduced by Rep. Mark Walker (R-NC). The bills differ slightly but all have the same intent and very similar effect.

On the positive side, the TCJA allowed itemizers to deduct up to 60 percent of their adjusted gross income for cash gifts to charity, as opposed to 50 percent under previous law.  Unfortunately, a drafting error in the bill means that donors who give property gifts cannot use the new higher limit for their cash gifts.  It appears very likely that this will be fixed in a “technical corrections” bill.

TCJA contained two problematic provisions related to the Unrelated Business Income Tax.  First, for organizations with more than one unrelated trade or business, it required that unrelated business taxable income be computed separately for each trade or business, and that a loss in one  may not be used to offset income from another.  Second, and rather astonishingly, it imposed UBIT on charities that provide their employees with fringe transportation benefits, such as parking or subsidized mass transit.  The so-called “church parking tax” caused such widespread outrage that Congress repealed it retroactively at the end of 2019.  Organizations that paid it may file for refunds.

A priority for art museums remains the restoration of artists’ ability to claim a tax deduction for the fair market value of work that they donate to collecting institutions.  For decades, the tax code has discouraged artists from donating their work directly to museums and has forced museums with limited purchasing ability to rely solely on the generosity, and collecting preferences, of donors. With art increasingly treated as an asset class, many prospective donors collect narrowly, with a view toward the market.  Under these circumstances, museums are missing out on collecting important works by a diverse population of artists, works that would help us tell a more complete and inclusive story of the history of global artmaking.  Rep. John Lewis (D-GA) has introduced H.R. 1793, that Artist-Museum Partnership Act, to remedy this situation.

For more information, contact Andy Finch in AAMD’s Washington office.