The tax laws may encourage individuals and businesses to give to charitable organizations whose missions they support by providing an itemized deduction or tax credit. The new federal tax law had the unintended consequence of diminishing federal giving incentives. State tax reform efforts in recent years have considered capping or eliminating charitable giving incentives, which would also have adverse effects on charitable giving.

Federal Charitable Giving Incentive

The federal charitable giving incentive was significantly reduced under the new federal tax law because of the near doubling of the standard deduction,  which results in a decline in the number of people who itemize. No one knows the extent of the impact that the changes under the new federal tax law will have on the ability of charitable nonprofits to raise the resources needed to provide the programs and services that fulfill their missions. It is imperative that Congress reverse the harmful effects by passing a universal charitable deduction to create a giving incentive for all taxpayers.

State Charitable Giving Incentives

States have found that capping or eliminating charitable giving incentives significantly undermines financial support for the work of nonprofits. Many have rejected changing current incentives and others have actually repealed the limits that have been shown to hurt communities in their states. Still others have expanded giving incentives in recent years.