Trump's tax and spending law may impact charitable giving

A report out of the Indiana University Lilly Family School of Philanthropy found that the One Big Beautiful Bill Act, passed last summer, will increase the number of Americans donating to nonprofits but will reduce the overall amount of money given to charity.

For more, “Marketplace Morning Report” host, Sabri Ben-Achour spoke with Patrick Rooney, one of the co-authors of the report. The following is an edited transcript of their conversation.

Sabri Ben-Achour: So, what are the main changes from the tax and spending law that are likely to affect charitable giving?

Patrick Rooney: One of the main things is the universal charitable deduction. And what it does is, most people, 90% no longer itemize on their taxes, and so they may make charitable gifts, but they can't take a deduction. And this universal charitable deduction allows people to deduct up to $1,000 for singletons and up to $2,000 for married couples. And this is a way of really democratizing — small-d — philanthropy. And we estimate that that will have around six to eight million new donors coming into the philanthropic space.

Ben-Achour: So, a lot more people can deduct charitable donations of up to $1,000. Where's the part where the total amount of giving comes down?

Rooney: Yeah, so there's a couple factors that have negative or deleterious impacts, and one of them is that, for itemizers, they can only deduct after they establish a floor of giving. So, after they give 0.5% of their charitable gifts, they can only deduct the additional gifts. And we estimated that that would reduce charitable giving by $2.4 billion. And something that's even bigger is that on the high end, people who are making a half million to million dollars or more per year and facing the 37% marginal tax bracket, there's a cap of 35% on what they can deduct on all deductions, including charitable donations.

Ben-Achour: So just so I understand, the wealthiest income brackets, instead of being able to deduct 37% of their income in charitable deductions, they can deduct 35%. Are there a lot of really wealthy people that give that much of their income to charity?

Rooney: Well, yeah, in that group of people who earn a million dollars or more, they account for 48% of total household giving dollar wise. We estimated that this tax cap would reduce household giving by $6.1 billion, so it seems like it creates an outsized effect.

Ben-Achour: All said, these kinds of small changes would result in a $5.7 billion drop in charitable donations — the value of them overall. How big of a deal is that?

Rooney: It's about 1% of total giving. And so that doesn't sound like that big of a deal, but this is something that will be an ongoing effect, not just in one year, but it'll be a permanent effect until the tax laws are changed again.