The tax reform plan that Donald Trump ran on to get elected carries something of a ticking time bomb for philanthropy. Once he's inaugurated, the rules for how much charitable giving can be deducted from your overall taxable income will likely change substantially. If Trump follows through on the proposal he released last September, that could create a dramatic budget crunch for organizations who rely on the generosity of donors for their funding—donors who might be less interested in giving since they will get fewer tax breaks when they do.
Trump's tax plan is to combine the current system of seven different tax brackets into three—12%, 25%, and 33%—each with a fixed rate of deduction. Because of these changes, it means that deductions for the top bracket would drop. Today, you get about $400 off your taxes for every $1,000 given to charity. Under Trump, it would be $330, as CBSNews has reported.)
High-net-worth earners often try to give away enough to counteract whatever huge tax sum they might otherwise have to pay. To that end, most can deduct up to 50% of their gross pay when giving to standard charities. Trump's reforms would cap those deductions at $100,000 for individuals and $200,000 for families. That doesn't affect, say, someone who is giving $100 to his church's soup kitchen, but it definitely changes the math for high-net-worth individuals who tend to donate fairly large sums of money to charity.
Perhaps we shouldn't care so much that the wealthy can't game their taxes, but philanthropies see it a different way. "Viewing [charitable tax deductions] as a ‘tax break for the richest’ ignores the lifeline that nonprofit support services and jobs provide millions of Americans," says the Charitable Giving Coalition in a public statement. The group, which includes United Way Worldwide, the Salvation Army, Catholic Charities USA, along with the Association of Fundraising Professionals, the Council on Foundations, and the Philanthropy Roundtable, repeated that sentiment in an open letter to Trump today urging him to rethink his position. "It’s not about the donor," the statement adds. "It’s about what donors’ dollars do to aid the most vulnerable, educate, heal, nurture and innovate—often in ways that government and the private sector cannot."
From an economic perspective, groups that fail to receive what’s essentially become a steady income stream could be strangled. Especially because Trump has suggested raising the standard deduction for those who don't want to waste time itemizing, which might affect how people from all different income levels ultimately give, since it will be easier for more people to get a refund without giving to charity. Short term, the new president might benefit from that, as there might be less enticement for those who oppose his administration’s objectives to funnel money toward oppositional causes. In the long run, the Center for Effective Government estimates that the proposed policy could reduce cause organization funding by $9.1 billion annually. And United Way Worldwide has reported that nearly two-thirds of Americans might reduce giving by 25% or more.
In their letter, the Coalition notes that one-in-10 Americans work in nonprofits, which means both those jobs, and employment opportunities and community services that those groups create for others could be threatened. That means the federal government might spend more in the long run to fix systemic problems these groups were set up to address.