Tax policy and charitable giving: an evaluation of the Tax Cuts and Jobs Act 2017 and its impact on charitable contributions

Studies of how the Tax Cuts and Jobs Act 2017 will affect charitable giving narrowly focus on the increase in the standard deduction. Based on these studies, the media and policy analysts warned that the Tax Cuts and Jobs Act would lead to a sharp decrease in charitable giving. However, these predictions did not fully account for some of the nuances in the tax code and the political economy of changes to tax policy. We explain that a richer analysis includes the political response of interest groups. Tax provisions other than changes to the standard deduction, such as an increase in the adjusted gross income limit, mean that the Tax Cuts and Jobs Act may change the composition of giving but that it is unlikely to have a large impact on overall giving. To supplement our analytical narrative, we present statistics on the pattern of charitable giving and estimate a predictive autoregressive model of overall charitable giving. The results show that the change in giving after the implementation of the Tax Cuts and Jobs Act cannot be distinguished from zero. We conclude that misleading interpretations about the effect of the Tax Cuts and Jobs Act on overall charitable giving are due to the omission of political economy from the analysis.

How Taxing Is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs

This paper uses a quasi-experimental design to estimate the cost of filing taxes. Using US tax returns, I observe how taxpayers choose between itemizing deductions and claiming the standard deduction. Taxpayers forgo large tax savings to avoid compliance costs, which provides a revealed preference estimate of such costs. I show that costs increase with income, consistent with an opportunity cost of time explanation. These estimates suggest substantial costs of filing federal income taxes, significantly larger than previously estimated using surveys. (JEL H24, H26, H31)

Tax Reform and Tax Experts

ABSTRACT The Tax Cuts and Jobs Act (TCJA), passed in 2017, represents the most comprehensive revision of the U.S. income tax since the Tax Reform Act of 1986 (TRA86). Although the TCJA shares many features with TRA86—corporate tax rate cuts, increasing the standard deduction, cutting back on deductions—it sharply differs in that it is neither revenue neutral nor distributionally neutral, both aspects of which are troubling in light of the large long-run federal fiscal imbalance and rising income inequality. Regardless of one's normative evaluation, the TCJA provides scores of natural experiments that can inform us about the consequences of tax changes on a wide range of economic behaviors.

A Historical Review and Prospective Modern-Day Assessment of the Non-Itemizer Charitable Contribution Deduction

ABSTRACT The direct charitable contribution deduction was an experimental deduction for the 1982–1986 tax years. It represents the only example in the tax laws in which non-itemizers were allowed a charitable contribution deduction in tandem with the standard deduction. This article offers a review of three distinct eras in tax history: the advent of the standard deduction, the enactment of the direct charitable contribution deduction, and its subsequent abandonment. This article clarifies the literature to demonstrate that the direct charitable contribution's demise was not a matter of course. The deduction was made permanent by the House of Representatives. Its extension was the subject of rigorous debate in the Senate and was tabled by only a few votes. This article also considers the prospect of a modern-day direct charitable contribution. Taken on balance, concerns of economic necessity, fiscal viability, and measurable impact on the charitable sector suggest that reinstatement is neither necessary nor a prudent tax subsidy. Modern-day data indicate that non-itemizers are already giving. The tax incentive, therefore, proffered through the non-itemizer charitable contribution deduction would likely have relatively minimal effect on the charitable sector.

Learning The Ropes: An Introductory Tax Return Case

In extant literature, there are few tax return cases appearing in journals. We present a complex case using a realistic scenario that is designed to be an introductory tax return assignment used in an individual federal income taxation course. The case is designed to teach students how to manually prepare a federal income tax return using the actual forms and schedules prepared by the Internal Revenue Service (IRS). This case is timely for two reasons. 1) Often tax return assignments in textbooks involve concepts that a student has yet to learn. For example, a textbook assignment often includes itemized deductions and credits, even though these topics are typically taught towards the end of an individual tax course. 2) In addition, with the availability of information on the internet, students have greater access to solutions to textbook assignments. This case comprehensively examines concepts typically covered in the first three or four chapters of an individual tax text: various types of income, exclusions, personal and dependency exemptions, capital gains and losses, and the standard deduction.

A Re-Examination of the Effects of Personal Deductions, Tax Credits and the Tax Rate Schedule on Income Tax Progressivity and Income Inequality

We refine and extend Seetharaman (1994) using tax-return-level Statistics of Income data that represent the population of 1992 federal individual income tax returns. Our results indicate that while the standard deduction, exemptions and tax rate schedule continue to contribute the most to progressivity, the rate schedule plays a much greater role (and the standard deduction and exemptions a much lesser role) than previously reported. In addition, consistent with Dunbar (1996), we find that tax credits, in particular the earned income credit, have a substantial effect on overall tax progressivity. Although itemized deductions continue to reduce overall progressivity, with housing costs (mortgage interest and real estate taxes) and state and local income tax deductions being the dominant items, our results indicate that their effect on tax progressivity is smaller than indicated in the earlier study. Finally, we find that the effect of the income tax system on income inequality is more pronounced than previously reported, especially when the data are partitioned by filing status.