One of the unfortunate consequences of the new federal tax law changes is the increase in taxpayers who will use the larger standard deduction and the inability to deduct charitable gifts from their federal taxes. Many people will continue to support their favorite charities despite the loss of the tax deduction. The American people have a long history of helping others either directly or through monetary gifts to charitable organizations. Hans Dekker of the wonderful Community Association of New Jersey reports that in 2016 Americans gave $390 billion, and that more than 70 percent of Americans gave something to charities.
However, it is certain that some percentage of people will stop or reduce their giving. It is also possible that potential new givers will not begin without the tax deduction incentive. Even a 1 percent drop is almost $4 billion dollars. Many of the services provided by these charities would fall to government to provide if the charities do not have the funds. Soup kitchens, homeless shelters, and addiction centers may have to close. Larger charities like hospitals, universities will probably not close, but their services may be curtailed.
It may be time to rethink charitable gifts and taxes. Why not pass legislation that would allow employees to have a portion of their pre-tax wages put into an account similar to the Flexible Spending Account (FSA) for health-related expenses? We could call it the Charitable Giving Account (CGA). Employees could direct their employer about which charity would receive the money. Reasonable dollar limits and rules similar to the FSA amounts could be part of the law.
Employers could either manage the process directly, or work with organizations like the Community Foundation. Employers may be eligible for the tax deduction as with their direct charitable gifts. With the lowering of the tax rates for corporations and pass-through entities, the impact to the federal revenues would be muted.
Charities serve the needs of so many people and are an important part of the fabric that makes America great. They should not suffer, and the less fortunate people who rely on them for assistance should not suffer because of an unintended consequence of the tax-law revisions. Employers and employees can work together to create a new dynamic to continue the historic tradition of Americans and philanthropy.