Episode 45: The Charitable Tax Deduction & Civic Engagement

Fresh Research, a NonProfit Times Podcast

Nonprofits have been pushing for a universal charitable deduction for years. The CARES Act created a temporary tax deduction for charitable gifts up to $300 for single or married filers in 2020. Congress extended that into 2021 and increased the deduction to $600 for married couples.

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Two professors at the University of Virginia proposed a tax subsidy to increase civic engagement and volunteering in a time of income inequality and political polarization. In their paper, The Charitable Tax Deduction and Civic Engagement, Andrew Hayashi and Justin Hopkins propose that all taxpayers with adjusted gross income (AGI) less than the national median would get the Community Contribution Credit. Hayashi is a professor at the University of Virginia School of Law and Hopkins is a professor at the University of Virginia’s Darden School of Business.

The refundable tax credit would be equal to 90% of their contributions, capped at $500. It would apply for donations to 501(c)(3) nonprofits — but also 501(c)(4) social welfare organizations, which currently are not eligible for deductible contributions. In 2018, the most recent year for which data are available, the national median AGI was $43,614. That year, 87.4% of taxpayers claimed the standard deduction while 11.4% of taxpayers claimed itemized deductions.

“We’re trying to make the taxpayer incentivized to think about their local organizations that they either have used in the past or are familiar with because I think there’s a good portion of people in our community who have never considered potentially donating to their local organizations because theres’s a lack of resources, or money is tight,” Hopkins said on this episode of the Fresh Research podcast. “But if you provide this incentive to everybody, then all of a sudden, you create sort of a whole new class of donor,” he said.

“Now all of a sudden, they have the the ability to make contribution to these organizations and maybe it’s organizations that have helped them in the past. And so I think one of the beautiful aspects of this is, is the idea of transforming a recipient or a client of a local nonprofit into an actual donor of it. And the idea that they would get involved in the operations and just provide a level of support and feedback that I think a lot of these organizations don’t see.”