Are Taxes Taxing Your Donors?

First Day Podcast

In this episode of the First Day Podcast, host Bill Stanczykiewicz, Ed.D., welcomes Howard Husock of the American Enterprise Institute and E.J. McMahon of the Empire Center for Public Policy to discuss the impact of the 2017 federal tax reforms on charitable giving. They explore how the doubling of the standard deduction reduced the number of taxpayers who itemize, significantly diminishing the tax incentives for charitable contributions. While overall charitable giving has increased in nominal terms since 2017, the share of adjusted gross income dedicated to philanthropy, particularly by middle- and upper-middle-income households, has notably declined. Howard and E.J. detail how the reforms affected donor behavior, especially among households earning $100,000 to $200,000—a critical demographic for many nonprofits. With fewer taxpayers itemizing deductions, the traditional end-of-year giving surge, driven by tax considerations, has weakened. Meanwhile, wealthier individuals earning $1 million or more have increased their giving, leveraging tax incentives tied to capital gains and higher incomes. This shift highlights a growing disparity in how different income groups approach charitable contributions under the current tax structure. The conversation also looks ahead to 2025, when the 2017 tax policy is set to expire, potentially reopening the door to significant reforms. Howard and E.J. advocate for a universal charitable tax deduction, which briefly existed during the COVID-19 pandemic. They argue this policy could democratize tax benefits for giving, making it more inclusive and accessible across income levels, while protecting charitable incentives from being perceived as a "loophole for the rich." They also emphasize the potential of donor-advised funds (DAFs) to help donors bundle contributions for greater tax efficiency while maintaining consistent philanthropic support. For fundraisers, the episode underscores the importance of understanding the evolving tax landscape and its influence on donor motivations. Howard and E.J. suggest strategies like promoting DAFs and discussing "bundling" techniques with donors to maximize their giving impact. By staying informed and adapting to these changes, fundraisers can better engage donors and sustain giving in an increasingly complex tax environment.