The $2.2 trillion CARES (Coronavirus Aid, Relief, and Economic Security) Act (passed by Congress in late March 2020 in response to the global pandemic) can be aptly characterized by the aphorism “Go big or go home!”
The act addresses many issues facing America’s public-health-induced next Great Recession. It includes stimulus payments of $1,200 per adult (phased out for high-income households) and $500 per dependent child, and it expands unemployment insurance for individuals. There have been financial supports for many businesses as part of the CARES Act (e.g., the Paycheck Protection Program [PPP] and the Employee Retention Credit, among many others), and there is even support for state, local, and tribal governments (e.g., $150 billion Coronavirus Relief Fund). Those parts of the CARES Act could be considered as “go big.” What the CARES Act does not include is any meaningful incentives for private giving during a period when all will be called upon to help their neighbors and build toward a better future in which all are invested. This is a major oversight, but it can be fixed quickly and with little effort on behalf of legislators.
Given the need to do something big—and quickly—it is perhaps unfair to call out what was not accomplished. But the CARES Act has some blind spots when it comes to the nation’s nonprofit and philanthropic sectors, which need support. The charitable sector plays an imperative role at both the micro level—to enhance lives—and at the macro level—to stabilize the economy as employers of 10.2 percent of the private labor force. Perhaps more important, charities—and the nonprofit sector more broadly—reinforce our civil society as, simultaneously, civil society contributes to the efforts to salvage our nation.
Keep in mind that the CARES Act comes on the heels of the 2017 Tax Cuts and Jobs Act (TCJA), which had several features that were likely to reduce the incentives for charitable giving by households during life and upon death, as well as corporations (the negative effect from corporations from the tax bill was the reduction in their top marginal tax rate from 35 percent to 21 percent).
Prior research by Indiana University’s Lilly Family School of Philanthropy, commissioned by Independent Sector (IS), on the expected impact of TCJA, estimated that it would reduce household giving during life on an annualized basis by about $13.1 billion (or 4.6 percent) as most itemizers became non-itemizers. Conversely, implementing the Universal Charitable Deduction (UCD) at the time TCJA was passed without a cap would have increased charitable giving by 4.3 percent prior to the TCJA provisions, or by 1.7 percent after the TCJA effects.
Then came the pandemic, which has caused the unemployment rates to surge, schools and childcare facilities to close, and housing to become yet more unstable, among many other challenges. Based on the agility of nonprofits in the midst of such crises, it would have been reasonable to expect lawmakers to “go big” in public policy efforts to help foster community giving to community action–or, as Robert Payton defined philanthropy, “voluntary action for the public good.
According to Lilly’s research for Giving USA 2019, during the Great Recession, household giving fell by almost 17 percent in inflation-adjusted dollars. It took almost a decade to catch back up to where total household giving was before the Great Recession. While there are many wonderful stories of giving to the COVID-19 crisis and its victims—and we know that giving during disasters does not reduce giving to other charities1—it is also clear that this public-health-induced recession is likely to be more serious than originally thought. It was reported in May this year that the new nine-week total for initial unemployment claims is 38 million, which is on top of the number of those who were already unemployed before the COVID-19 recession began. This new nine-week total for initial unemployment insurance claims already exceeds the total unemployment insurance claims filed during the Great Recession (37.1 million). This suggests that there is a need for substantive solutions, ones that are longer lasting than just the calendar year 2020. Hence, the need to “go big.”
What Has Been Done by Congress to Date Regarding Giving
Attention to charitable giving in the CARES Act was almost negligible, including only a UCD for people who do not itemize deductions on their taxes, and which has a cap of $300. (It has several other restrictions, including that it is limited to cash gifts, and gifts from donor-advised funds need not apply.)
While the installation of a UCD can expand the number of people at all income levels who give to charity—and the version passed in the CARES Act does have some potential to increase giving by households—the likely empirical effects of this particular UCD are small, given its very small cap and very temporary status.
In short, the measure taken to date was far less than what is needed.
Research done by Penn Wharton Budget Model (PWBM) suggests that the effects of the UCD—as it is currently structured, with the $300 cap—will be de minimis (i.e., so minor as to merit disregard). PWBM e