As Congress grapples with a complex tax reform bill, it might be easy to overlook a troubling component of the measure – doubling of the standard deduction, which would have a significant negative impact on charitable giving.
The tax plan Congress rolled out this week would require most people who give to charity to essentially pay taxes on those donations. Currently, about 36 million taxpayers claim the charitable giving deduction, which they receive because they itemize deductions on their tax returns. Those 36 million are responsible for 82 percent of all charitable giving by individuals.
Proponents of the tax bill insist it keeps the charitable deduction intact. This is technically true. However, a doubled standard deduction – combined with other proposed tax code changes such as loss of the federal deduction for state taxes – will result in 28 million of those 36 million taxpayers changing to non-itemizer tax filing status. The charitable deduction would be effectively eliminated for them. According to an analysis by Indiana University, giving by these middle class Americans could be reduced by about $13 billion as a result of these changes.
What does all of this mean for Bakersfield and Kern County?
Consider this: The median household income in Kern County is around $50,000 per year. There are, of course, donors of great wealth in our community who are capable of making transformative gifts. But the vast majority of donors to Kern nonprofits are middle class individuals and families who give what they can to help others.
Charitable organizations work in Bakersfield because thousands of people who work hard and make a decent living donate some of their hard-earned income to help people who are struggling. When families making $50,000 a year decide to give to a local charity, it can be a hard decision. A few hundred dollars one way or another in the family budget can be a big deal, and providing some small tax benefit for giving helps. Certainly, few of these donors give solely because of the tax deduction. People give for a myriad of reasons, including tax benefits.
The average individual donation to United Way of Kern County is about $195 a year. It adds up and makes a big difference. It helps that many people who give to charity don’t have to pay taxes on the dollars they donate. So, they donate a little more, and that adds up, too. According to a recent donor survey across our system, 70 percent of United Way donors itemize. I suspect the numbers are likely similar for other organizations.
At a time when Kern County’s economy is struggling, and nonprofits are struggling to meet increasing community needs, we need to give all of our donors every incentive to continue supporting the causes that are important to them.
Congressman Kevin McCarthy is in a position to help fix this problem with the tax reform bill by ensuring that all people who give to charity – whether they are middle class or wealthy – don’t have to pay taxes on their donations.
These issues may not be as interesting as corporate tax cuts or “stimulating the economy,” but it’s something that matters in Kern County and it’s something Congressman McCarthy can do to make a difference at home.
Della Hodson is president of United Way of Kern County.