Philanthropic sector leaders, policy makers and others are interested in gaining better understanding of the various potential effects of creating a charitable giving tax incentive for taxpayers who do not itemize deductions on their federal income taxes.
In order to provide objective, research-based information, the Indiana University Lilly Family School of Philanthropy at IUPUI, in partnership with the Wharton School of Business at the University of Pennsylvania, recently analyzed the potential impact of five distinct policy proposals to develop a tax benefit for charitable giving for non-itemizers. The study was commissioned by Independent Sector, a national membership organization of nonprofits, foundations, and corporations.
The analysis includes:
- The estimated change in how much money would be given to charitable organizations, compared to current law;
- The estimated revenue cost to the federal government, compared to current law; and
- The estimated change in the number of households that would give to charitable organizations, compared to current law.
The five proposals analyzed are:
- A deduction identical to itemizers’ tax incentive;
- A deduction with a cap in which gifts over $4,000 or $8,000 do not receive an incentive;
- Deduction with a modified 1% floor, in which donors can deduct half of the value of their gift if it is below 1% of their income and the full amount of the donation if it is above 1%;
- A non-refundable 25% tax credit; and
- An enhanced deduction that provides additional incentives for low- and middle-income taxpayers.