If it is true that people vote with their wallets, then they have been voting in record amounts this campaign season. According to Open Secrets, presidential candidates—including those who lost in the primaries—have raised a collective $1.5 billion so far this cycle. Since entering the race just a few weeks ago, Vice President Kamala Harris alone has raised more than $540 million. Candidates for the House and the Senate have raised a combined $2.5 billion.
The takeaway here is not that there is too much money in politics (everyone has their own views on that). No, the 2024 race is teaching us that people will give generously to causes they believe in—and they don’t need a tax deduction to induce them to give.
As lawmakers look to renew or revise the 2017 tax cuts that expire next year, they should reconsider the need for a charitable tax deduction in the tax code.
This year’s political giving trends are not an anomaly. During the 2022 midterm elections, candidates at all levels spent a record $16.7 billion on their election campaigns, all of which was raised from contributions that were not tax deductible.
Years ago, the tax code did allow a small credit for political contributions. The maximum credit amount was $100 for a couple. But the 1986 Tax Reform Act repealed the credit because it mostly benefited high-income taxpayers.
Today’s charitable deduction, likewise, has also become the province of the rich.
The Tax Cuts and Jobs Act (TCJA), enacted in 2017 by former President Trump, nearly doubled the standard deduction, reducing the percentage of taxpayers claiming the charitable deduction from 25 percent in 2017 to just 8 percent today. According to Congress’s Joint Committee on Taxation, 97 percent of taxpayers who now claim the charitable deduction earn more than $100,000. Millionaires alone deducted more than $36 billion in donations from their taxes in 2023, a majority of the nearly $58 billion deducted by all taxpayers.
Because it is believed to incentivize benevolence, the charitable deduction may be one of the most sacrosanct provisions in the tax code. Even some of the most ardent tax reformers have been unwilling to recommend its repeal.
Yet, the deduction has always been reserved for a minority of taxpayers, even in years when the top income tax rate was exceptionally high and the value of the deduction was at its most beneficial. For example, in 1954, when the top tax rate was 91 percent, only 23 percent of filers claimed the deduction. In 1979, when the top rate was 70 percent, just 26 percent of filers claimed the deduction.
Notwithstanding the deduction’s mythical impact on generosity, there is little historical connection between the overall amount of charitable donations and the percentage of taxpayers who claim the deduction.
Multiple major tax law changes over the past 40 years have caused considerable fluctuations in the number of taxpayers claiming the charitable deduction, often from year to year. Yet, since 1983, individual donations have nearly tripled in real terms, growing from $159 billion to $439 billion in 2021, according to Giving USA. Comparing these two trend lines, it is clear that there is an inverse relationship between the overall amount of individual giving and the percentage of taxpayers claiming the charitable deduction.
Yes, incentives matter in tax policy. But real-world data indicates that Americans’ willingness to give to charity is tied more to rising after-tax incomes and the overall health of the economy than to the charitable deduction.
Indeed, Giving USA data shows that total individual giving did not fall following the TCJA, as many feared and as a recent academic paper claims. Overall individual contribution levels currently are above pre-TCJA levels in both nominal and inflation-adjusted terms.
Still, nonprofit advocates are hoping to use next year’s expiration of the TCJA to pressure Congress to create a new charitable deduction for taxpayers who don’t itemize. Rather than create another carveout in the tax code, a better solution is to eliminate itemized deductions altogether and use the savings to keep tax rates low for everyone.
Scott Hodge is president emeritus of the Tax Foundation and author of the book Taxocracy: What You Don’t Know About Taxes and How They Rule Your Daily Life.
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