For tax year 2014, there were 43,965,083 individual tax returns filed that itemized deductions on Schedule A. The total amount of itemized deductions in 2014 were $1,206,705,085. Deductions relating to charitable cash contributions were $155,455,063 and other than cash contributions were $65,330,485.
Under the current tax law, the standard deduction is set at $12,600 for joint filers and $6,300 for single filers. Under Trump’s proposed tax plan, the standard deduction would raise to $30,000 for joint filers and $15,000 for single filers. The Tax Policy Center estimates that 27,000,000 of the 43,965,083 that itemized in 2014 would be taking the standard deduction under Trump’s plan, a 60% decrease.
For example, a family with an adjusted gross income (AGI) of $100,000 in a state with a 5% tax bracket, who owns a $400,000 home, would have approximately $5,000 in state and local income taxes and $13,000 in home mortgage interest. They would need an additional $12,000 of itemized deductions before they even get $1 of tax benefit for itemizing.
If personal giving is based on the presumption of getting a tax benefit, then the decrease tax benefit from the charitable deduction would significantly reduce the amount charities will receive. In 2014, people with an AGI under $100,000 that itemized contributed $43,963,832 in cash to charities (28.28% of all charitable cash giving) and $10,421,429 of non-cash contributions to charities (15.95% of all non-cash charitable giving).
Furthermore, Trump’s plan would also place a limit on itemized deductions of $100,000 for single filers and $200,000 for joint filers. In 2014, taxpayers with AGI over $1,000,000 deducted on average $165,000 in charitable contributions. A person with an AGI of $4,000,000 in a state with a tax rate of 5 percent would hit this cap with just their state taxes alone. Therefore, people with AGIs over $1,000,000 may not actually receive any tax benefit from itemizing.
Lastly, Trump’s tax plan also calls for a repeal of the estate tax. A common planning strategy is making charitable donations during an individual’s life to reduce the size of the taxable estate. Eliminating the estate tax would remove the incentive for wealthy individuals to make contributions in order to lower their taxable estate.
By eliminating the tax benefit of charitable deductions, it is expected that charitable organizations will see a significant decrease in their charitable contributions during the year. The Tax Policy Center estimates Trump’s tax plan will reduce charitable donations between 4.5 and 9 percent, which amounts to $13.5 billion to $26.1 billion in 2017 alone[i].