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Charitable Giving by Individuals Declines Following Tax Reform

Is that the full picture though?

A lot has been written about the tax reform law and the potentially negative effect it may have on charitable giving by individuals. Now, a new Giving USA report seemingly confirms what many experts have been alluding to, and what many charities have feared—in 2018, total charitable giving declined by 1.7% and giving by individuals declined by 3.4%, after adjusting for inflation. Though we like to believe that individuals give for reasons other than the tax benefit, the doubling of the standard deduction and other changes brought on by the Tax Cut and Jobs Act likely played a role in the decision making of if, and how much, to give, particularly by middle class households that were previously big itemizers. The tax reform can’t be solely blamed, however, as the drop can also likely partially be attributed to a volatile stock market.

The Big Picture

As disconcerting as the numbers may be, it’s important to remember to look at the bigger picture. First, it’s too early to speculate whether there is indeed a correlation and whether this will be a long-lasting effect of the tax reform. “Single data points to a single point in time, you have to wait to see the trends” that may emerge over the next few years to know the full impact, says Lawson Bader, CEO of DonorsTrust in Alexandria, Virginia. To support this view, Bader reminds us that the United States is still very charitable, with giving still up 9% since 2016, and 2017 being a record year.

How Individuals Give

Another aspect to take into consideration, according to Bader, is how individuals give. According to the report, individual giving was down to 68% of overall giving in 2018, from 70% percent of overall giving in 2017. This decline, Bader says, may not paint an accurate picture of charitable giving as a whole, because many individuals are now turning to charitable vehicles, such as donor advised funds (DAFs), to donate. Because DAFs count as foundation giving, the numbers in the report may not be reflective of the shift of individuals now giving via such charitable vehicles. That analysis is substantiated by the fact that giving by foundations and corporations rose (though ever so slightly).

Bader also points out that millennials are disrupting the way charitable contributions are made. For example, untraditional giving methods such as funding GoFundMe campaigns is the method of choice for many millennials looking to donate to a cause they support. Donations via crowdfunding platforms such as GoFundMe constitute a gift and are not tax deductible. These forms of charitable giving aren’t accounted for in studies such as the Giving USA report.

Charitable giving is also very much industry specific. Bader points out that the current generation is less religious, which can explain the decline in giving to religious organizations, meanwhile global warming and environmental issues have become front and center, which would explain the uptick in giving to organizations affiliated with the cause.

While charities may rightly be on the edge of their seats, time and more research are still needed to see the full impact of the tax reform on charitable giving and whether a generational shift in how we give may be the culprit.

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