Average Americans may curb their philanthropic giving if President Donald J. Trump's proposed doubling of the standard deduction comes to fruition.
If taxpayers can shield twice as much of their income from taxes through the standard deduction, a smaller number of households will be financially motivated to make donations that qualify as itemized charitable deductions on their income taxes, experts say. Today about 25% of Americans itemize and take the charitable deduction.
"Take away the charitable income tax deduction and replace it with a larger standard deduction and some taxpayers will have less incentive to make charitable donations," said Richard Behrendt, director of estate planning at Annex Wealth Management. "That's not to say that people will stop giving altogether, but these changes will definitely have a dampening effect on overall philanthropy."
The tax plan proposed by the White House on Wednesday would double the amount a person could claim through the standard deduction, which, if based on 2017 rates, would raise it to $12,700 for individuals and $25,400 for couples. This element of the tax overhaul is meant to allow average Americans who don't itemize their deductions to pay less in taxes.
Advisers said those who are economically motivated are most likely to reduce their giving, but they don't believe that the bulk of philanthropic giving or planning will vanish.
"I believe most people give to give and would likely continue to do so," said Annika Cushnie, a financial adviser with Brightworth.
Even though some Americans may move to the standard deduction instead of itemizing, those taxpayers who continue to itemize would still get "a bigger bang for their buck with the charitable donation," she said.
The lower tax rates that are being proposed, though, could result in less overall tax savings on charitable gifts, Ms. Cushnie said.
Another element of the tax plan that could hurt philanthropic giving is the repeal of the federal estate tax.
Higher-net-worth taxpayers who may be subject to the federal estate tax may be enticed to make charitable bequests part of their estate plans if doing so will cut their exposure to the estate tax.
"Some of these folks might prefer to give money to their favorite charity over giving it to the federal government," Mr. Behrendt said.
President Trump's tax proposal also would retain the federal income tax deduction for home mortgage interest, while eliminating some other income tax deductions.
But doubling the standard deduction and eliminating some of the other tax deductions, specifically the state and local tax deduction, would impact the housing market, according to real estate professionals.
For most Americans it would "effectively nullify the current tax benefits of owning a home," the National Association of Realtors said in a statement.
Homeowners could see the value of their homes decline and their equity erode if the president's tax reform package cuts the tax incentives they depend on, the group said.