As the debate over the renewal of the Tax Cuts and Jobs Act (TCJA) gains momentum, a new working paper claims that these tax cuts have reduced giving. A closer look, however, shows that these claims are misleading because the analysis falls short in scope and methodology and ignores the importance of higher incomes and growth on long-term giving patterns.

A notable fundamental problem with this study is that the analysis spans 2000–2018 and includes only a single year after TCJA reform. This snapshot approach does not give us a comprehensive view of long-term trends in charitable giving after tax reform. This is particularly problematic when we consider that some donors likely bundled their giving in late 2017 in anticipation of tax changes, leading to an artificial increase in giving in 2017 and a subsequent decline in 2018.

The following graph shows longer-term giving patterns beyond 2018. The data shows that individual and total giving have continued to increase over time.

The second problem is that the analysis focuses on a tiny subset of single-listing donors. The data come from biennial interviews with about 4,000 individuals, while the data on single-listing donors who are likely to change their reporting status are concentrated on fewer than 900 individuals. Such a narrow scope cannot properly account for the broad changes in giving behavior of donors who do not single-list, or the changes in giving behavior of those who continue to single-list after the reform.

For example, the average donation of those donors who continued to itemize after the reform increased from less than $7,000 to over $13,000 in 2018 and 2019 and to over $16,000 in 2020. At the same time, the total amount of non-itemized private donations tripled between 2017 and 2018 from about $30 billion to over $95 billion, reaching nearly $120 billion in 2019 and 2020.

Furthermore, existing literature suggests that survey data are less reliable and accurate than tax data because they tend to overstate behavioral changes in tax policy.

A common problem with many studies that look at the impact of tax policy on giving is that they rely too heavily on federal tax returns. Thirty-one states offer tax deductions for charitable giving. By excluding these deductions, the analysis fails to account for how donors’ giving behavior changes regardless of whether they file detailed tax returns at the federal level. Studies that consider state deductions find that purported giving declines largely disappear when state-deductible giving is included in the analysis.

Finally, and perhaps most importantly, the working paper’s methodology does not account for the positive impact of tax policy changes on income. Tax policy changes affect philanthropy in two ways: 1) by changing the tax price of giving and 2) through their impact on income and growth momentum. Two years after the TCJA was passed, the Council of Economic Advisors estimated that the tax cuts had increased inflation-adjusted household income by as much as $2,900.

Since charitable giving typically accounts for about 2% of national income – a trend that has held steady for decades – any changes in economic activity have consequences for the evolution of charitable giving. For example, previous research has found that donors increase their giving by 7% for every 10% increase in income. This new working paper only considers changes in the tax price of giving, without fully considering how higher disposable incomes and economic growth lead to more charitable giving.

The claim made in a new working paper that the TCJA had a negative impact on charitable giving is misleading because of its limited scope and methodology. The fact that the study relies on data from only one year after the reform, its narrow focus on donor listing, and its exclusion of government deductions undermine its findings.

Furthermore, because the analysis ignores the positive income effects of the tax cuts, it does not capture the full picture of trends in charitable giving. A more comprehensive approach shows that nominal giving has continued to rise while real giving has remained relatively constant, reflecting higher disposable incomes and economic growth. This underscores the complexity of the impact of tax policy on charitable giving.