Please Donate,” Gerry Dincher

Dr. Rooney has done breakthrough research showing the decline in the number of giving households across the United States. These articles can be found here and here.

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 estimates that it will cost the Treasury about $2 billion, and would increase charitable contributions by about $110 million (or a 0.03 percent increase relative to their base). They state: “The negligible impact on total [household] giving is in part due to the design of the deduction’s ceiling limitation: for many non-itemizing families, who already give more than $300, the marginal tax subsidy would still be 0 [zero] percent under the policy”.

Although I have not yet examined the PWBM estimates in close detail, they appear to be consistent with what I would expect to see, for the following reasons:

  1. A team of researchers from the Lilly Family School of Philanthropy (including myself) analyzed the estimated effects of five different tax policies on the amounts donated by households and the number of expected donating households. This work, which was commissioned by IS, tested the following options: (a) an unlimited UCD, (b) a UCD with large caps (e.g., $8,000 per couple), (c) a UCD with a modified 1 percent floor, (d) a 25 percent universal charitable tax credit, and (e) an enhanced UCD that would count gifts from low-income households more heavily. This research found that estimated household giving would grow about 50 percent more without a cap than with a $4,000 cap for individuals and an $8,000 cap for couples ($26.2 billion increase in household giving without a cap versus $17.4 billion increase with these relatively large caps).
  2. There is not much difference between these two models in the net number of new donors that would be gained (i.e., there would be an increase of 7.3 million new donors without a cap versus 7.0 million new donors with a cap), so the difference in giving is disproportionately at the higher end (above the cap amounts). In other words, if the lack of any cap with a UCD generates over 50 percent more in household giving compared to a UCD with a cap of $8,000 per couple (i.e., $8.8 billion more), and if the UCD without any caps increases the number of donors by only 300,000 donors, then the average gift by these incremental donors is $29,333. This is considerably more than the average gift for the typical non-itemizing household (approximately $1,300).
  3. The amounts given by non-itemizing donors averaged about $1,000 per year (adjusted for inflation) from 2000 to 2004, and trended up to over $1,300 in 2012 and 2014, according to the Lilly Family School of Philanthropy’s Philanthropy Panel Study. In other words, most non-itemizers who currently donate give substantially more than the new cap of $300 for the new UCD created as part of the CARES Act. Therefore, a $300 UCD is largely going to give a tax deduction to non-itemizers for gifts that they were already going to give. In fact, the PWBM states that while the UCD with a $300 cap might induce some new charitable gifts (presumably by those who were not donating at all before), they estimate that this “effect would likely be small—that is, the new deduction would likely do little to spur giving” (see p. 1, Table 1, showing that the “average tax cut”—i.e., the amount of the donation—for the middle quintile of income earners is $40).

In short, economics tells us that incentives matter, but a $300 cap is the proverbial “bare bone” being thrown to the philanthropic sector. Given the great needs that exist today, why not go big or go home on this point also?

Other elements of the CARES Act also do not seem likely to have merit if their intention was to stimulate charitable giving. For example, the maximum deduction for corporations was raised from 10 percent to 25 percent of pretax corporate profits. On the surface, this looks encouraging; however, the reality is that the average amount of pretax corporate profits donated by U.S. corporations over the last forty years is less than 1 percent (Giving USA 2019). The number of known corporations donating 5 percent can likely be counted on one hand. Therefore, a 10 percent limit is what economists call a “nonbinding constraint” (i.e., there is a legal constraint, but it has no effective constraint). If 10 percent is a nonbinding constraint, then lifting it to 25 percent is an unbound constraint.

Similarly, the limit for households’ share of adjusted gross income (AGI) that can be deducted from their taxes (for itemizers) was raised from 50 percent to 60 percent, as part of the tax bill passed in December 2017 (TCJA).

Keep in mind that previously, donors could carry forward any unused deductions for up to five years. (The IRS even has specific directions on how to do this.) In other words, if a household donated more than 50 percent of its AGI in year one, it could use any of the unused charitable tax deductions created by that donation in any (or all) of the next five years. This suggests that even among the very small share of households that donated more than 50 percent of their AGI in any given year, those households could recoup the value of the donation over the next five years—or that they had enough income that they just did not care about the tax deduction. The CARES Act lifted that limit on the share of AGI that could be donated completely for 2020 (with some constraints on how/where it could be donated). Again, superficially, this looks like a big incentive. In reality, as David Joulfaian wrote in a paper in 2005—which has the most detailed information from de-identified but actual taxfiler data from the IRS I have found on the number and size of actual carryforwards—the number of tax filers who donated above 50 percent of their AGI is quite small, but the dollar impact is not. While these data are from many years ago (2002), they are likely quite indicative of the share of taxpayers donating above the cap. I have calculated three facts from Table 2 (p. 17) in Joulfaian’s paper:

  1. Very few households that make a charitable gift, make such a large gift—relative to their AGI—that they can carry forward part of the charitable donation as a tax deduction in future years. In 2002, it was only 1.1 percent of all donors.
  2. However, carryforwards represent a disproportionately high share of the total gift dollars. In 2002, the carryforwards were 26.9 percent of total itemized gifts that year.
  3. The average gift amount in the carryforwards was thirty-five times the average gift amounts among all itemized donations that year—excluding the carryforwards.

Therefore, it is reasonable to conclude that the opportunity to make large gifts (at least relative to one’s AGI) already existed, and that raising the limit to 100 percent for just one year is not likely to have a meaningful impact. Other practical considerations reducing the efficacy of this notion include the fact that unless one had been planning on doing so already, it seems improbable that a household could scramble and donate 100 percent of its AGI this year. By limiting this elimination of the cap on household gifts as a share of AGI to the current year, it radically reduces the probability that an individual or couple could shift their household finances to accomplish this. It seems likely that the effects of COVID-19 will last longer than 2020, so it would make more sense to make this adjustment to the law stand for at least five years—but ideally permanently—if the lawmakers want to have any effect with this policy change.

What Could Have Been and Should Now Be Done

If Congress really wants to make a significant difference for community-fueled community action, or to stimulate charitable giving to help restore the nonprofit sector, they should have instituted a different type of universal tax treatment for charitable donations—either a UCD for non-itemizers without a cap (but if a cap is needed to secure passage, it should be  a very large cap) or a universal charitable tax credit (UCTC) of 25 percent or more. Nicolas Duquette, an economist at the University of Southern California (USC), suggested another option that could be considered. The idea is to have a two-tiered tax credit. The first tier would consist of a 10 percent tax credit on all gifts, but the tax credit would increase to 37 percent for all gifts above 2 percent of a household’s AGI. Professor Duquette estimates that this two-tiered credit would increase household donations by approximately 20 percent. While this option is more complicated, it does create an additional incentive to give beyond the typical 2 percent of AGI.

Considering the impact of the pandemic, which is likely to create the need for recovery that lasts for many years, legislators might be wiser to consider an unlimited UCD or a meaningful universal charitable tax credit (e.g., 25 percent). Lilly’s research for Independent Sector has estimated that a 25 percent UCTC would increase household giving by 10.8 percent, and the number of new donors by 12 percent. Alternatively, the two-tiered tax credit suggested by Duquette is estimated to increase household donations by 20 percent.2 In an era where the biggest questions seem to be how much money can we get out the door and how fast in order to help people in need, why are budget hawks fighting this particular battle? An alternative question to ponder: In an era when “budget hawk” may be viewed as an unknown phrase or even a non sequitur, who is fighting this battle (and why)? To put this in perspective, the Congressional Budget Office (CBO) estimated that the federal deficit for fiscal year 2020 is $3.7 trillion, up from $1.0 trillion in 2019. The total federal debt was $25.3 trillion before the COVID-19 spending, and it will clearly grow dramatically this year—if not for several years—regardless of whether or not there are any caps on UCDs or other incentives for charitable giving.

Many in the nonprofit sector reacted similarly to the UCD with a $300 cap. Leaders of more than two hundred charities signed a letter sent to Congressional leadership shortly after the CARES Act passed. In that letter, asking for more support for charities from an anticipated CARES Act 2.0, they specifically asked for increasing the $300/person cap [on the UCD] and extending the effective date of the incentive.

Hence, my personal conclusion is that with respect to philanthropy, the CARES ACT is essentially a poker bluff. Lawmakers could say they were “going big” with a UCD, raising the limits for charitable deductions dramatically for corporations, and even eliminating the limits for households. However, the cap on the UCD of $300 and the increased limits on what were already nonbinding constraints for both households and corporations suggests that lawmakers really just decided to throw a bone to the philanthropic and nonprofit sectors and “go home.”

Clearly, there are important roles in society, especially in the aftermath of the pandemic, for governments at all levels (federal, state, and local), private households, private corporations, and our public–private civil society. If significant elements of our philanthropic and nonprofit sectors are severely injured during this period, when it is needed the most, who will care if the lost treasury revenues for the UCD were less than they might have been without a cap (or with a very large cap)?

The CARES Act created an important opportunity to move in the direction of incentivizing philanthropy from all households. There is room for more, as legislators consider a follow-up: CARES Act 2.0. This is the time for lawmakers to truly “go big.” If the charitable sector is significantly injured from the combination of excess demand for services for some charities and the complete absence of demand for other others—given social distancing and the nature of both programming and fundraising for many charities—there are important risks to our nonprofit and philanthropic sectors and the roles they can play in rebuilding our civil society. First, the sectors will not be able to serve those who need them now. Second, if they are neglected now, it may take decades or generations to rebuild our great charities, large and small, across all fields, from health and human services to arts and culture, as well as education, international affairs, and environment/animals. Third, religious congregations too could experience the effects of the COVID-19 crisis, as they are not impervious to the business cycle or public policy, even though giving to religion is less affected by either the business cycle or tax policies than is most giving (see Giving USA 2019 and Independent Sector’s Tax Policy and Charitable Giving).

The CARES Act UCD clause is a nice first step, but its $300 cap make it a very small, step. If lawmakers were serious about increasing charitable giving now and in the long run, then all of the limits on charitable deductions should be eliminated—permanently, not just for 2020.

Go big or go home!


  1. See Sarah Smith, Kimberley Schaerf, and Mark Ottoni-Wilhelm, “Lift and Shift: The Effect of Fundraising Interventions in Charity Space and Time,” Bristol Economics Discussion Papers 17/687, Department of Economics, University of Bristol, U.K.; and Kathy Steinberg and Patrick Rooney, “America Gives: A Survey of American’s Generosity after September 11,” Nonprofit and Voluntary Sector Quarterly 31, No. 1 (2005): 110–35.
  2. Nicolas Duquette, “A Two-Tiered Charitable Contribution Credit For All American Taxpayers,” Policy Memo, May 7, 2020.