One Big, Beautiful Bill complicates charitable giving

The House’s “One Big Beautiful Bill Act” is over 1,000 pages long. Sprinkled throughout are provisions that reshape how the tax code treats charitable giving. But rather than streamlining or strengthening charitable giving, the provisions add new layers of complexity. As a result, the bill risks reducing charitable giving, which totaled $557 billion in 2023. Policymakers still have an opportunity to modernize the tax code to support charitable contributions efficiently and effectively.

Under the bill, the tax treatment of charitable giving changes in three ways:

• Establishes through 2028 a new temporary charitable contribution deduction of up to $300 for non-itemizers, similar to the CARES Act provision that expired in 2021.
• Offers a new nonrefundable 100% tax credit until 2029 on gifts up to the lesser of $5,000 or 10% of adjusted gross income but only for gifts made to organizations that primarily grant scholarships to private or religious elementary and secondary schools.
• Sets a new floor on contributions by C corporations equal to 1% of taxable income.

These provisions would introduce new complications to charitable giving without meaningfully increasing charitable giving. Data show that the one-time, above-the-line deduction included in the CARES Act increased total charitable deductions by only 5% in 2020. In addition, enforcement would be difficult. For example, currently, cash gifts of $250 or more require written acknowledgement of the donation from the recipient. So, a taxpayer could claim two $150 contributions with no written record of those gifts. The new credit for gifts to organizations supporting religious schools also may face constitutional scrutiny. 

Other provisions would indirectly affect charitable giving. By raising the standard deduction and only partially loosening the Tax Cuts and Jobs Act’s (TCJA) cap on the state and local tax (SALT) deduction, the bill would make itemizing less attractive for many households.

The bill raises the $10,000 SALT cap to $40,000, but only for those with less than $500,000 in modified adjusted gross income (AGI). It also permanently increases the standard deduction by $1,000 for single filers and $2,000 for married couples filing jointly through 2028. Such changes could reduce the number of taxpayers who itemize at all, narrowing the group that could benefit from the charitable deduction.

More importantly, the bill keeps the top individual income tax bracket at 37%, permanently. The rate would otherwise return to 39.6% in 2026 upon expiration of the TCJA’s individual income tax provisions. With expiration, an itemizer in the top tax bracket would have seen a $396 reduction in taxes for every $1,000 contributed. Under the bill, the itemizer would only receive $370.

The bill would also bring back a limit on itemized deductions for high-income taxpayers. Unlike the prior limit, temporarily suspended under the TCJA and based on AGI so as not to affect the incentive to give, the new limit directly reduces the value of the deduction. The tax savings on a $1,000 contribution would fall further, from $370 to $350.

Taken together, the lower top rate and the limit on itemized deductions reduce the charitable deduction’s value by $46 per $1,000, or a 4.6 percentage point decrease. This sizable decline would affect those in the top tax bracket—taxpayers who make the most contributions.

A more unified approach to reforming the charitable deduction is possible.

• If Congress wishes to limit the revenue loss from tax-subsidized charitable giving, it could have imposed a 1% floor on contributions by individuals as well as corporations.
• If it finds a tax credit is superior to a deduction, Congress could provide a partial tax credit for all contributions, not just those made to specific organizations.
• If it finds the standard deduction a useful way to simplify taxes and that benefits of itemization should be limited, it could return to the previous income-based approach—or eliminate itemization altogether.

With so many competing agendas shaping the House bill, trade-offs were inevitable. Unfortunately, the bill falls short of offering an efficient and effective plan for charitable contributions. Well-designed policy can encourage broad participation in charitable giving to strengthen the nonprofit sector and ensure that public dollars amplify the social good. Policymakers still have an opportunity to advance a comprehensive approach to supporting charitable contributions through the tax code.