Congressional Budget Office

Testimony

CONGRESSIONAL BUDGET OFFICE

SECOND AND D STREETS, S.W.

WASHINGTON, D.C. 20515

Statement of 

Frank J. Sammartino

Assistant Director for Tax Analysis

Options for Changing the 

Tax Treatment of Charitable Giving

before the 

Committee on Finance 

United States Senate

October 18, 2011

This document is embargoed until it is delivered at 

10:00 a.m. (EDT) on Tuesday, October 18, 2011. The 

contents may not be published, transmitted, or otherwise 

communicated by any print, broadcast, or electronic 

media before that time.

Chairman Baucus, Senator Hatch, and Members of the 

Committee, I appreciate the opportunity to appear before 

you today to discuss options for changing the tax treatment of charitable giving. My written testimony reprises 

the Congressional Budget Office’s (CBO’s) most recent 

report on that topic, which was published in May 2011.

Summary

Under current law, taxpayers who itemize deductions 

may deduct the amount they donate to charities from 

their adjusted gross income (AGI) when determining 

how much they owe in federal income taxes. That deduction gives people who itemize an incentive to contribute 

to charities. Like other forms of preferential tax treatment, the deduction also costs the federal government 

revenues that it might otherwise collect. At current levels 

of charitable giving, the cost of that deduction—measured as the additional revenues that could be collected if 

the deduction was eliminated—will total about $230 billion between 2010 and 2014, according to the Joint 

Committee on Taxation (JCT).1

Numerous proposals have been made in recent years to 

alter the income tax treatment of charitable giving by 

individual donors. Some proposals aim to reduce the 

cost to the government by imposing a floor (or minimum 

level) that a person’s charitable giving would have to 

exceed to qualify for preferential tax treatment. Other 

proposals would extend the current charitable deduction 

to taxpayers who do not itemize deductions or would 

replace the current deduction with a nonrefundable tax 

credit available to all taxpayers who make charitable 

contributions.2

For this analysis, CBO examined how much taxpayers in 

various income groups donate to charities and what types 

of organizations receive those donations. CBO also investigated how changing the structure of tax incentives for 

giving would affect the tax subsidy (the cost in forgone 

revenues to the federal government), the overall level of 

charitable giving, and the extent to which different 

income groups benefit from the tax preference. Specifically, CBO looked at 11 options for altering the current 

income tax treatment of charitable giving, which can be 

grouped into 4 categories: 

 Retaining the current deduction for itemizers but 

adding a floor. 

 Allowing all taxpayers to claim the deduction, with or 

without a floor. 

 Replacing the deduction with a nonrefundable credit 

for all taxpayers, equal to 25 percent of a taxpayer’s 

charitable donations, with or without a floor. 

 Replacing the deduction with a nonrefundable credit 

for all taxpayers, equal to 15 percent of a taxpayer’s 

charitable donations, with or without a floor. 

For each of the four categories, CBO analyzed two 

potential floors: a fixed dollar amount ($500 for single 

taxpayers and $1,000 for couples filing a joint return) 

and a percentage of income (2 percent of AGI). Only 

contributions in excess of the floor would be deductible 

or eligible for a credit. The analysis uses data for 2006, 

the most recent year for which the Internal Revenue Service’s public-use sample of individual income tax returns 

is available. The tax treatment of charitable contributions 

is generally the same today as it was in 2006; however, 

because of rising incomes and contribution amounts, the 

options that include a fixed dollar floor would have a 

somewhat different impact today than presented here.

Effects of Policy Options on Tax Subsidies and 

Charitable Donations

According to CBO’s modeling, adding a contribution 

floor to any of the approaches listed above would reduce 

both the total federal tax subsidy and the total amount 

donated to charity, relative to the same option without a 

floor. In each case that CBO examined, the reduction in 

the subsidy (and thus the increase in revenues) would 

exceed the reduction in charitable contributions, whether 

measured in dollars or as a percentage change. The reason 

is that introducing a floor would continue to provide a 

tax incentive for additional giving above the level of the 

floor and at the same time reduce the tax subsidy for

1. A deduction for charitable contributions also exists under the corporate income tax. JCT estimates a much smaller five-year cost for 

that deduction: about $17 billion. See Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2010–

2014, JCS-3-10 (December 15, 2010), www.jct.gov/publications 

.html?func=startdown&id=3718. 

2. Taxpayers can use tax credits to reduce their income tax liability 

(the amount they owe). Nonrefundable credits can lower income 

tax liability to zero, but excess credits cannot be used to increase 

tax refunds. In contrast, refundable credits that exceed income tax 

liability are paid to taxpayers as refunds.
2 OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING

CBO

Table 1.

Summary of Total Donations and Tax Subsidies Under Current Law and 

Eleven Policy Options, 2006

Source: Congressional Budget Office.

Notes: The simulation results are for tax year 2006, and all figures are at 2006 levels. 

$500/$1,000 = $500 for individual filers and $1,000 for joint filers; AGI = adjusted gross income.

donations that people might have made even without a 

tax incentive.3

Allowing all taxpayers to claim a deduction for charitable 

giving would have increased donations in 2006 by an 

estimated $2.0 billion (or 1 percent) and increased the 

total tax subsidy by $5.2 billion (or 13 percent) from the 

2006 amounts. Combining a deduction for all taxpayers 

with a floor, however, could both increase donations and 

decrease the tax subsidy. For example, such a deduction 

combined with a fixed dollar floor of $500/$1,000 would 

have increased donations by $800 million in 2006 and 

decreased the tax subsidy by $2.5 billion (see Table 1).

Replacing the current deduction with a 25 percent tax 

credit would increase donations and also increase the government’s forgone revenues. Combining such a credit 

with certain contribution floors, however, could boost 

donations while reducing the tax subsidy or could 

decrease donations by a small percentage while reducing 

the tax subsidy by a large percentage. Setting the credit at 

15 percent would reduce donations but would reduce the 

tax subsidy by a larger amount (both in dollars and as a 

percentage change). 

Floor for

Eligible Donations

No floor 203.0 40.9

$500/$1,000 -0.5 -5.5

2 percent of AGI -3.0 -15.7

No floor 2.0 5.2

$500/$1,000 0.8 -2.5

2 percent of AGI -1.9 -13.1

No floor 2.7 7.1

$500/$1,000 1.5 -2.4

2 percent of AGI -1.0 -11.9

No floor -7.8 -13.3

$500/$1,000 -8.6 -19.0

2 percent of AGI -10.0 -24.6

Add Floor

Total Contributions Tax Subsidy

(Billions of (Billions of 

2006 dollars) 2006 dollars)

Current Law

Deduction Available Only to Itemizers

Change from Current Law

Keep Deduction Available Only to Itemizers but

Convert Deduction to 15 Percent Nonrefundable 

Option 1

Option 2

Extend Deduction to All Filers

Option 3

Option 4

Option 5

Convert Deduction to 25 Percent Nonrefundable 

Credit for All Filers

Option 6

Option 7

Option 8

Credit for All Filers

Option 9

Option 10

Option 11

3. The fact that some nonitemizers contribute to charities despite 

receiving no tax benefits for doing so suggests that a substantial 

amount of charitable giving would still occur in the absence of a 

tax incentive.
OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING 3

CBO

Effects of Policy Options on Various Income Groups

Changing the tax treatment of charitable contributions 

would have differing effects on taxpayers at different 

points on the income scale. Adding a contribution floor 

to the current deduction for itemizers would reduce tax 

subsidies for all income groups, but for high-income 

taxpayers, the size of the reduction would vary significantly depending on the type of floor used. For instance, 

augmenting the deduction with a fixed dollar floor of 

$500/$1,000 in 2006 would have lowered the tax subsidy 

for people with AGI over $100,000 by 0.08 percent of 

their AGI, whereas adding a floor equal to 2 percent of 

AGI would have lowered the tax subsidy for that income 

group by 0.30 percent of their AGI. 

Making the deduction for charitable contributions available to nonitemizers would benefit lower- and middleincome taxpayers, who tend not to itemize deductions 

because their deductible expenses (such as mortgage 

interest and state and local taxes, as well as charitable 

donations) are not large enough to exceed the standard 

deduction. Those groups would benefit even more if the 

current deduction—which tends to help higher-income 

taxpayers more because they face higher tax rates—was 

replaced with a nonrefundable credit that gave all income 

groups the same tax incentives for giving. For example, 

replacing the deduction with a 25 percent credit in 2006 

would have increased the tax subsidy for taxpayers with 

AGI below $100,000 by 0.27 percent of their AGI, but it 

would have decreased the tax subsidy for people above 

that income level by 0.09 percent of AGI. Tax subsidies 

would be lower for all income groups with a 15 percent 

credit than with a 25 percent credit.

Caveats About This Analysis

The results of CBO’s policy simulations are meant to 

highlight the general effects of the various approaches. 

The exact size of those effects, however, would depend on 

the specific parameters of a policy—such as the level of 

the floor or the amount of the credit—as well as on the 

extent to which taxpayers would change the amount of 

their charitable giving in response to a change in the tax 

subsidy. In addition, this analysis does not reflect many of 

the other ways in which taxpayers might respond to a 

change in their tax subsidy, such as shifting donations 

between years. (In the appendix of its May 2011 study 

Options for Changing the Tax Treatment of Charitable 

Giving, CBO examines how sensitive these results are to 

several different assumptions, including variations in taxpayers’ responsiveness to changes in their tax subsidy and 

the possibility of shifts in the timing of donations.)

Options for Changing the Tax 

Treatment of Charitable Giving: 

Introduction 

Taxpayers who itemize deductions on their federal 

income tax returns can reduce their tax liability by 

deducting their donations to qualified nonprofit organizations—including organizations dedicated to religious, 

charitable, scientific, literary, or educational purposes. 

Both monetary contributions and the value of donated 

financial assets or other property are deductible, subject 

to certain annual limits (see Box 1). The tax treatment of 

charitable giving, which has evolved over time, provides 

various incentives for donations.

Although corporations can also deduct their charitable 

donations, this testimony focuses on contributions by 

individual donors. It examines patterns of individual 

charitable giving and finds that the majority of such giving comes from a small number of taxpayers with high 

incomes. The testimony also reviews concerns about the 

current tax treatment of giving and assesses how various 

changes to that treatment would affect the amount of 

donations made, the tax subsidies for them, and the 

distribution of those subsidies by income group.

History of Tax Incentives for Charitable Giving 

The deduction for charitable donations is a long-standing 

feature of the individual income tax: It was created in 

1917, just four years after the modern income tax began.4

The amount of charitable contributions that could be 

deducted was initially capped at 15 percent of a taxpayer’s 

income. In general, the deduction applied only to highincome people, because they were the only ones required 

to pay the income tax in its early years. 

During World War II, as the income tax expanded to 

cover three-quarters of the U.S. population, the standard 

deduction was introduced as an option for taxpayers.5

4. The charitable deduction was enacted in the War Revenue Act 

of 1917. 

5. The standard deduction makes tax filing simpler because taxpayers do not need to keep track of all of their itemized expenses. 

(Besides charitable donations, major expenses that can be 

deducted include mortgage interest, state and local taxes, and 

medical costs that exceed a certain percentage of a taxpayer’s 

adjusted gross income.) In addition, the standard deduction lowers the tax burden for taxpayers who have small amounts of itemizable deductions. For 2011, the standard deduction is $5,800 

for single filers, $11,600 for joint filers, and $8,500 for heads of 

households. 
4 OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING

CBO

The deductibility of charitable contributions was then 

limited to taxpayers who chose to itemize deductions for 

specific expenses they had incurred rather than claim the 

standard deduction. (In determining the initial size of the 

standard deduction, officials took into account a certain 

typical amount of charitable contributions.)6

Nonitemizers were allowed to deduct their charitable 

contributions for a brief period during the 1980s. The 

Economic Recovery Tax Act of 1981 created a temporary 

“above-the-line” charitable deduction, permitting taxpayers who opted for the standard deduction to also 

deduct charitable contributions.7

 That provision was 

gradually phased in starting in 1982 and took full effect 

for 1986, after which it was allowed to expire.

Besides making charitable contributions during their lifetime, people can bequeath donations to charities from 

their estates upon their death. Such bequests, although 

not the focus of this analysis, can be deducted when 

determining estate taxes.8

 Charitable giving during one’s 

lifetime has advantages over bequests, however, because it 

can decrease individual income taxes now as well as estate 

taxes later (by reducing the size of the estate that is left) 

rather than just decreasing estate taxes.9

How Tax Incentives Affect Giving

By allowing itemizers to deduct their donations, the 

government indirectly subsidizes charitable activities. For 

example, someone in the 25 percent tax bracket faces an 

after-tax price of only 75 cents when giving a dollar to 

charity. In other words, a person in that bracket who 

donates $1 to charity has his or her taxes reduced by 

25 cents, so his or her consumption and savings decline 

by just 75 cents. In general, the deduction lowers the 

after-tax price per dollar of charitable contributions from 

$1 to $1 multiplied by the difference between one and 

the marginal tax rate.

Box 1.

Current-Law Limits on the Deduction for Charitable Contributions

Under current law, deductions for cash donations 

may not exceed 50 percent of a taxpayer’s adjusted 

gross income (AGI). Deductions for donated property that has appreciated in value since it was initially 

acquired are generally limited to 30 percent of AGI. 

Although donations of appreciated property are subject to a lower percentage cap, to the extent that they 

fall below the cap, they receive more-favorable tax 

treatment than cash contributions do. The reason is 

that taxpayers do not have to pay income tax on capital gains from appreciated property that they donate, 

even though they can claim the fully appreciated 

value as a deduction. Deductions that are limited by 

those percentage-of-income caps can be claimed in 

future years (as long as total deductions in those years 

remain below the caps).

Beginning in 2013, with the expiration of the Tax 

Relief, Unemployment Insurance Reauthorization, 

and Job Creation Act of 2010 (Public Law 111-312), 

high-income taxpayers will be subject to an additional limit on deducting charitable contributions. 

At that point, if a taxpayer’s AGI exceeds a specific 

threshold, total itemized deductions will be reduced 

by 3 percent of the income above that threshold (with 

the total reduction limited to 80 percent of the sum 

of certain deductions). Because that limit is based on 

the amount of income above the threshold, not on 

the amount of itemized deductions, it will not affect 

a taxpayer’s marginal incentive to give an additional 

dollar to charity.

6. See the statement of Congressman Willis A. Robertson, Congressional Record, vol. 90, 78th Cong., 2nd sess. (1944), p. 3973. 

7. From 1982 to 1984, the deduction was capped at between $50 

and $300. For 1985 and 1986, the cap was removed; instead, 

nonitemizers could deduct 50 percent of their charitable contributions in 1985 and 100 percent of their charitable contributions in 

1986.

8. See Congressional Budget Office, The Estate Tax and Charitable 

Giving (July 2004).

9. That statement is based on the assumption that earnings and 

consumption behavior are not affected by whether donations 

are made before or after death.
OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING 5

CBO

Although the underlying motives for charitable giving 

are complex and not fully understood by economists, 

empirical studies generally find that taxpayers respond to 

the after-tax price of giving to some degree. Such tax 

incentives are limited, however, to the subset of taxpayers 

who itemize, and they favor high-income people, who 

face relatively higher marginal tax rates. That situation 

raises several questions: Could tax subsidies for charitable 

giving be extended to more taxpayers without costing the 

federal government large amounts of forgone revenue? 

Could the subsidies per dollar of giving be made equal for 

taxpayers across the income distribution? This analysis 

examines how policy options to address those questions 

would affect donations, revenue costs, and the distribution of tax benefits.

Patterns of Individual 

Charitable Giving

Donations by individuals make up the majority of 

contributions to U.S. charities. According to the Center 

on Philanthropy at Indiana University, U.S. charities 

received a total of $304 billion in contributions in 2009 

(equal to 2.2 percent of gross domestic product that 

year).10 Of that amount, $227 billion, or approximately 

75 percent, was donated by individuals. The other 

25 percent came from foundations, corporations, and 

estates (bequests).

Trends in Donations over Time

From the mid-1960s to the mid-1990s, individual giving 

rose steadily, even after accounting for inflation. Over the 

following five years, such giving soared, growing by more 

than 60 percent between 1995 and 2000 (see Figure 1). 

That surge was probably tied closely to gains in the 

stock market. As the stock market declined after 2000, 

inflation-adjusted individual giving fell by 4 percent in 

2001 and stagnated through 2003, before increasing by 

more than 13 percent between 2003 and 2007. With the 

recession and renewed decline in the stock market that 

began in late 2007, inflation-adjusted individual giving 

declined by almost 4 percent in 2008 and stayed flat in 

2009.

Figure 1.

Total Charitable Contributions by 

Individual Donors, 1963 to 2009 

(Billions of 2009 dollars)

Source: Congressional Budget Office based on data from the 

Center on Philanthropy at Indiana University, Giving USA 

2010: The Annual Report on Philanthropy for Year 2009 

(Chicago: Giving USA Foundation, 2010).

Among people who filed tax returns, charitable giving 

averaged about 2.5 percent of income in 2008 (the latest 

year for which such information is available). That figure 

includes itemizers who deducted charitable donations as 

well as nonitemizers, whose charitable giving was estimated by CBO on the basis of surveys in which people 

report their contributions to charity. Giving as a share of 

income was fairly similar for most income groups in 

2008, except for the highest-income taxpayers. Among 

people reporting more than $500,000 in adjusted gross 

income that year, charitable giving averaged about 3.4 

percent of income (see Figure 2).11

Higher-income households account for a significant 

portion of individual giving. People who reported AGI 

of at least $100,000 in 2008 were responsible for about 

58 percent of charitable giving by taxpayers, although 

they made up less than 13 percent of tax filers (see 

Table 2). At the top of the income scale, less than 1 percent of taxpayers had AGI over $500,000, but they

10. See Center on Philanthropy at Indiana University, Giving USA 

2010: The Annual Report on Philanthropy for Year 2009 (Chicago: 

Giving USA Foundation, 2010).

11. For itemizers, giving as a share of income is U-shaped: The giving 

rates at both ends of the income distribution are higher than those 

in the middle.

1963 1972 1981 1990 1999 2008

0

50

100

150

200

250
6 OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING

CBO

Figure 2.

Percentage of Income That Tax Filers Contribute to Charity, by 

Income Group, 2008 

(Percentage of adjusted gross income)

Source: Congressional Budget Office based on data from Internal Revenue Service, Statistics of Income Division, Individual Income Tax 

Returns 2008 (revised July 2010); the Federal Reserve Board’s 2004 Survey of Consumer Finances; and the Bureau of Labor Statistics’ 2002 Consumer Expenditure Survey.

Note: Includes CBO’s estimates of charitable contributions by people who filed income tax returns in 2008 but did not itemize deductions.

made 24 percent of the total charitable contributions by 

taxpayers in that year. 

Recipients of Donations

Data from tax returns do not identify the different organizations to which individuals make donations.12 Instead, 

researchers in one study examined patterns of household 

giving using surveys by the University of Michigan and 

Bank of America.13 They found that, in general, the 

higher a household’s income, the smaller the share of 

donations that went to religious causes and the larger the 

share that went to causes related to health, education, and 

the arts. For example, among households with AGI below 

$100,000, 67 percent of giving was directed toward religious organizations, and only 7 percent went to institutions that focus on health, education, or the arts (see Figure 3 on page 8). Among households that reported at 

least $1 million in income, the situation was reversed: 

Just 17 percent of donations were made to religious organizations, and 65 percent were made to support health-, 

education-, or arts-related activities. 

Concerns About the Current Tax 

Treatment of Charitable Giving

The present income tax treatment of charitable giving 

subsidizes certain taxpayers’ donations to charitable organizations and activities. Although those donations are 

generally seen as benefiting all of society, concerns have 

been raised about the current structure of the federal 

subsidy—in terms of the amount of forgone tax revenues, 

the incentives for donating, and the degree to which 

taxpayers respond to those incentives.

Under

$50,000

$50,000 to 

$100,000

$100,000 to 

$200,000

$200,000 to 

$500,000

Over

$500,000

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Adjusted Gross Income

12. The recipient organization is sometimes reported for donations by 

itemizers, but even in those cases, the fact that many organizations 

serve multiple functions makes it difficult to categorize the contributions by type of recipient. 

13. See Center on Philanthropy at Indiana University, Patterns of 

Household Charitable Giving by Income Group, 2005 (Indianapolis: 

Indiana University–Purdue University, 2007). In that study, 

estimates of giving by households with annual income below 

$200,000 were based on the Center on Philanthropy Panel Study, 

a module of the Panel Study of Income Dynamics conducted by 

the University of Michigan. Estimates for households with annual 

income above $200,000 were based on data from Bank of America’s Study of High Net Worth Philanthropy.
OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING 7

CBO

Table 2.

Charitable Contributions, by Tax Filers’ Itemizing Status and 

Income Group, 2008

Source: Congressional Budget Office based on data from Internal Revenue Service, Statistics of Income Division, Individual Income Tax 

Returns 2008 (revised July 2010); the Federal Reserve Board’s 2004 Survey of Consumer Finances; and the Bureau of Labor Statistics’ 2002 Consumer Expenditure Survey.

a. Includes CBO’s estimates of charitable contributions by people who filed income tax returns in 2008 but did not itemize deductions. 

Cost to the Government of Subsidizing 

Charitable Contributions

The revenue cost to the government of the charitable 

deduction is not obvious from the total dollars donated 

or deducted because the tax rate that would have applied 

to the income had it not been donated (the marginal tax 

rate) varies greatly among individuals. The marginal rate 

can even vary for the same person depending on how 

much he or she donates. One way to estimate the revenue 

loss from charitable contributions is to simulate the 

change in tax revenues that would result if there were no 

deduction for charitable contributions and compare that 

result with actual revenues using a microsimulation 

model that can calculate the difference in taxes from a 

representative sample of tax returns. Using that approach, 

CBO estimates that the tax subsidy associated with the 

charitable deduction totaled $40.9 billion for 2006.

The subsidy for charitable giving is concentrated among 

high-income taxpayers to an even greater extent than 

donations are (see Figure 4 on page 9). Although taxpayers reporting adjusted gross income of at least $100,000 

accounted for 11 percent of tax returns and 57 percent of 

charitable contributions in 2006, they received 76 percent of the tax subsidy associated with charitable deductions. In contrast, taxpayers reporting AGI of less than 

$50,000 filed 66 percent of returns, accounted for 

19 percent of charitable donations, and received 5 percent of the tax subsidy for donations.14 The difference in 

the tax subsidy occurs because higher-income people are 

more likely to itemize deductions (and thus to receive a 

tax subsidy for donations) and because higher-income 

people generally pay higher marginal tax rates and thus 

receive a larger subsidy (relative to other itemizers) per 

dollar of donation.

93 65 21 53 37 19

31 22 27 81 47 24

14 10 22 90 43 21

3 2 12 93 24 12

1 1 18 94 49 24 ___ ___ ___ ___ ___

Total 142 100 100 64 199 100

14 29 8 70 20 12

18 37 23 82 40 23

12 25 28 90 41 23

3 7 17 93 24 14

1 2 25 95 49 28 __ ___ ___ ___ ___

Total 48 100 100 81 173 100

Adjusted Gross Income

$100,000 to $200,000

Over $500,000

Under $50,000

$50,000 to $100,000

(Billions of 

Percentage of

Amount of

Charitable Share of 

Number of Contributions

dollars)a

Share of

Tax Returns

(Percent)

Share of

Total Income

(Percent)

Charitable

Contributions

Filers with

Charitable

All Filers

Tax Returns

(Millions) Contributionsa (Percent)a

Itemizers

Under $50,000

$50,000 to $100,000

$200,000 to $500,000

$100,000 to $200,000

$200,000 to $500,000

Over $500,000

14. Those numbers include CBO’s estimates of charitable contributions by income tax filers who did not itemize deductions.
8 OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING

CBO

Figure 3.

How Donors Allocate Their Charitable Contributions, by Income Group and 

Type of Recipient, 2005 

(Percentage of donations)

Source: Congressional Budget Office based on data from the Center on Philanthropy at Indiana University, Patterns of Household Charitable 

Giving by Income Group, 2005 (Indianapolis: Indiana University–Purdue University, 2007).

a. Combined purpose funds, such as the United Way, receive contributions and allocate them to many different types of charities.

9 67

10

3

3

1 7

Religious Organizations

Combined Purpose Fundsa

Organizations Devoted to Helping Meet Basic Needs

Health Organizations

Education Organizations

Arts Organizations

Other

Under $100,000 $100,000 to $200,000

57

11

12

6

6

2

6

23

11

6

5

32

15

8

17

4

4

25 25

15

10

$200,000 to $1 Million Over $1 Million

Adjusted Gross Income
OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING 9

CBO

Figure 4.

Different Income Groups’ Shares of Total Contributions and the 

Total Tax Subsidy, 2006 

(Percent)

Source: Congressional Budget Office.

Incentives Created by the Charitable Deduction

By subsidizing charities through individual income tax 

deductions, the government leaves the choice about 

which charities are subsidized largely to taxpayers. In 

doing so, however, it makes no distinction about the 

extent to which different charitable services would be 

provided in the absence of the tax subsidy. A sufficiently 

generous tax incentive can cause even charitable activities 

with large social benefits to be provided beyond the point 

at which the benefits to society of allocating more 

resources to those activities are lower than the benefits of 

allocating the same resources to other activities.

Subsidizing charitable organizations through income tax 

deductions also means that the subsidy accrues only to 

people who have income tax liability and itemize deductions and that the after-tax price of giving decreases with 

the donor’s marginal tax rate. Because people with higher 

income generally face higher marginal tax rates, they are 

subsidized at a greater rate than lower-income taxpayers 

are. In 2008, 25 percent of tax filers (or about 35 million 

returns) faced a federal income tax rate of zero (see 

Table 3).15 For those filers, the deductibility of charitable 

contributions gave them no tax benefits and hence no 

tax incentive to donate. At the same time, the 5 percent 

of filers who were in the 28 percent, 33 percent, or 

35 percent tax brackets faced a substantially lower price 

of giving than the 54 percent of filers who faced tax rates 

of 10 percent or 15 percent. Because the subsidy for a 

given amount of charitable donations increases along 

with income, the deduction for charitable donations 

reduces the degree to which the average income tax rate 

(taxes as a percentage of income) rises as income grows. 

Even so, the federal income tax and overall federal tax system both remain progressive, in that high-income filers 

pay a much larger share of their income in taxes than 

lower-income groups do.16

Under $50,000 $50,000 to $100,000 $100,000 to $200,000 $200,000 to $500,000 Over $500,000

0

20

40

60

80

Adjusted Gross Income

Tax Returns

Charitable Contributions

Tax Subsidy

15. Another 24 million potential tax filers were not required to file a 

return that year, generally because their income was below the 

filing thresholds.

16. For example, CBO estimated that, on average, households that 

were in the lowest one-fifth of the income distribution in 2007 

(as measured by household income) received more in tax credits 

than they paid in federal individual income taxes, whereas households in the highest one-fifth of the income scale paid federal 

income taxes that averaged 14 percent of their income. With all 

types of federal taxes included, households in the lowest one-fifth 

of the income scale paid less than 5 percent of their income in federal taxes, on average, whereas those in the highest one-fifth of the 

income scale paid about 25 percent of their income in federal 

taxes. See Congressional Budget Office, Average Federal Tax Rates 

in 2007 (June 2010).
10 OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING

CBO

Table 3.

Tax Filers, by Highest Marginal Tax 

Rate, 2008

Source: Congressional Budget Office based on Internal Revenue 

Service, Statistics of Income Division, Individual Income 

Tax Returns 2008 (revised July 2010).

Note: The statutory marginal tax rates shown here may not precisely correspond to the rates that apply to charitable deductions because they do not account for such factors as the 

alternative minimum tax, the earned income tax credit, or 

phaseouts for personal exemptions and itemized deductions. 

These rates reflect only federal income taxes; combined federal and state marginal income tax rates are higher. (Most 

state income taxes also allow a deduction for charitable 

contributions.)

Only about one-third of tax filers itemize their deductions. The price of giving for the two-thirds who do not 

itemize (primarily people in the lower tax brackets) is 

not subsidized, and thus—like people facing an income 

tax rate of zero—they have no tax incentive to make 

donations. Of course, nonitemizers have the option of 

itemizing their deductions; they do not do so primarily 

because their total itemized deductions, including charitable donations, are less than the standard deduction. If 

people’s responsiveness to tax incentives increases with 

income, the approach of providing higher marginal 

incentives for charitable giving to higher-income taxpayers stimulates more donations; however, there is little 

evidence that higher-income taxpayers are more responsive to the after-tax price of giving than other taxpayers 

are.17 Nonetheless, the fact remains that the current 

subsidy gives lower-income households less incentive to 

donate than it gives higher-income households.

Taxpayers’ Responses to the Income Tax 

Treatment of Giving

How taxpayers respond to the tax incentives for charitable giving depends on their underlying motive for making donations. Motivations for giving are complicated 

and not fully understood. With a purely private good 

(one whose full benefits accrue to the person bearing 

the full cost), both the motivation and the behavior it 

engenders are straightforward: People buy the good 

because they receive benefits from it, and they keep 

buying more units of the good until the benefit (the 

value to them) of the next unit just equals the cost of the 

next unit. That is also broadly true for charitable giving, 

but measuring the benefit that donors receive is more 

complicated. 

Some giving is probably motivated by altruism: People 

receive satisfaction from knowing that others in society 

are helped. The satisfaction of the donor depends partly 

on the satisfaction of others, regardless of who is paying 

for the help that is given. In the altruistic view, a potential 

donor is just as pleased if a third party steps in and provides the contribution instead. Some giving, however, is 

motivated not only by pure altruism but also by the 

“warm glow” that some people feel when giving or helping others—or from receiving public recognition for their 

good deeds.18 In that case, the donor’s self-satisfaction 

depends on believing that he or she played a role in (or is 

being recognized for) helping others. Still other giving is 

more analogous to a private good, with the benefits 

directly accruing in proportion to the size of the donation. Examples include gifts to college sports programs 

(often in exchange for preferential treatment in purchasing tickets to athletic events) and donations to art museums (which sometimes confer special benefits only for 

donors). 

Although those various motivations may prompt different kinds of responses to incentives for charitable giving, 

empirical studies have generally found that the amount of 

giving is responsive to changes in the after-tax price of 

giving. That responsiveness can be measured by the price 

elasticity of charitable giving—the percentage change in 17. Although the percentage of households that report making charitable contributions rises with income (see Table 2 on page 7), 

empirical studies offer inconclusive evidence about whether 

responsiveness to tax incentives differs significantly for households 

at different income levels.

Highest Marginal 

Rate (Percent)

35 25

26 18

50 35

23 17

4 3

2 1

1 1 ____ ____

All Tax Rates 142 100

Share of Tax 

0

10

15

Returns (Percent)

25

28

33

35

Number of Tax

Returns (Millions)

18. See James Andreoni, “Impure Altruism and Donations to Public 

Goods: A Theory of Warm-Glow Giving,” Economic Journal, 

vol. 100, no. 401 (1990), pp. 464–477.
OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING 11

CBO

donations associated with a 1 percent increase in the price 

of giving.

Policymakers are generally interested in the permanent 

effects of policy changes, so estimates of how various 

policy options would alter charitable giving must rely on 

elasticity estimates that distinguish between transitory 

shifts in giving and permanent responses to a policy 

change. For example, a taxpayer who faces a temporary 

fluctuation in income has an incentive to shift donations 

to years when income is temporarily high and thus the 

after-tax price of giving is low. Taxpayers may also change 

the timing of their donations in response to a preannounced change in tax law. The Tax Reform Act of 

1986, which sharply reduced marginal income tax rates 

for high-income taxpayers, offers a good example. Charitable giving by high-income taxpayers increased steeply in 

1986, possibly in anticipation of that law, which was 

enacted in October 1986 and gradually phased in 

between 1987 and 1988. Failing to address shifts in giving that result from income fluctuations or preannounced 

changes in tax law may cause an elasticity estimate to be 

biased upward (in absolute value).

Most studies that estimate the relationship between 

charitable giving and tax rates use data from tax returns. 

Among those studies, ones that distinguish between permanent and transitory responses to price variation have 

found mixed evidence about the permanent price elasticity of giving. Elasticity estimates vary significantly as a 

result of differences in the underlying data and time 

periods studied and the different methods used to derive 

the estimates. For example, one prominent study that 

examined a panel data set covering 10 years estimated a 

permanent price elasticity of giving of -0.5 (meaning that 

a 1 percent increase in the price of giving would reduce 

donations by 0.5 percent).19 Another study that used an 

expanded version of the same data set but applied a different methodology reported elasticity estimates ranging 

from -0.8 to -1.3.20

Experimental methods offer another approach to estimate the relationship between the price and level of 

charitable giving. For instance, researchers have studied 

how people alter the amount of their contributions in 

response to matching grants (conditional offers to match 

contributions at a specified rate). Researchers in one 

study conducted a field experiment on existing donors to 

a charitable organization and found that announcing the 

availability of a matching grant increased donations, 

although the level of contributions was not affected by 

differences in the matching rate announced.21 That study 

estimated an overall price elasticity of -0.3, lower than the 

estimates from the aforementioned studies that were 

based on tax data. Because the experiment was framed as 

a matching grant rather than a change in the after-tax 

price of giving, however, the result may not be directly 

applicable to policies involving changes in tax rates.

Effects of Policy Options to Alter the 

Tax Treatment of Charitable Giving

In recent years, numerous proposals have been made to 

change the tax incentives for charitable giving. Such 

changes could take various forms, which would have different impacts on the costs to the federal government, the 

amount of charitable giving, and the number and types of 

taxpayers who would benefit. To illustrate the effects of a 

range of possible changes, CBO has examined 11 stylized 

policy options. The most important characteristics of the 

options are whether the tax benefit includes a floor (or 

minimum amount of donations) below which contributions are not subsidized; whether it is restricted to itemizers or is available to all taxpayers; and whether it takes the 

form of a tax deduction or a credit. The options can be 

grouped into 4 sets according to those characteristics:

 Retaining the current deduction for itemizers but 

adding a floor. 

 Allowing all taxpayers to claim the deduction, with or 

without a floor. 

19. See William C. Randolph, “Dynamic Income, Progressive Taxes, 

and the Timing of Charitable Contributions,” Journal of Political 

Economy, vol. 103, no. 4 (1995), pp. 709–738. 

20. See Gerald E. Auten, Sieg Holger, and Charles T. Clotfelter, 

“Charitable Giving, Income, and Taxes: An Analysis of Panel 

Data,” American Economic Review, vol. 92, no. 1 (2002), pp. 371–

382. Also see Jon Bakija and Bradley T. Heim, “How Does Charitable Giving Respond to Incentives and Income? New Estimates 

from Panel Data,” National Tax Journal (forthcoming), which 

assembled the same data set and two others and found similar 

results. 

21. See Dean Karlan and John A. List, “Does Price Matter in 

Charitable Giving? Evidence from a Large-Scale Natural Field 

Experiment,” American Economic Review, vol. 97, no. 5 (2007), 

pp. 1774–1793.
12 OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING

CBO

 Replacing the deduction with a nonrefundable credit 

for all taxpayers, equal to 25 percent of a taxpayer’s 

charitable donations, with or without a floor. 

 Replacing the deduction with a nonrefundable credit 

for all taxpayers, equal to 15 percent of a taxpayer’s 

charitable donations, with or without a floor. 

In each option with a floor, the minimum contribution 

level was specified to be either a fixed dollar amount 

($500 for people filing individually and $1,000 for 

couples filing a joint return) or a percentage of income 

(2 percent of AGI). Only the amount of a taxpayer’s total 

charitable donations that exceeded that floor would be 

deductible or eligible for a credit.

If the current deduction for itemizers was augmented 

with a floor, the deduction would continue to provide 

incentives for charitable giving but at a much lower subsidy cost. The total amount of donations would decline, 

but the tax subsidy would decline by a much larger 

amount, CBO estimates. For example, a fixed dollar floor 

that allowed itemizers to deduct charitable giving in 

excess of $500 for individuals and $1,000 for joint filers 

would decrease annual donations by $0.5 billion relative 

to current law, CBO estimates, but would decrease the 

federal tax subsidy by $5.5 billion (see Table 4). Both of 

the reductions would be larger with a higher floor 

(whether the floor was specified in dollar terms or as a 

percentage of AGI). Those results would occur because 

most donations would come from taxpayers who gave 

amounts above the floor, and although the floor would 

reduce the subsidy that those taxpayers received, it would 

maintain their tax incentive to make an additional dollar 

of donations.

Extending the current deduction to all filers or making a 

relatively large nonrefundable tax credit available to all 

filers would have the opposite effect: increasing both 

donations and the tax subsidy. However, CBO’s analysis 

indicates that if either of those approaches was combined 

with a contribution floor, it would be possible to raise 

donations while simultaneously reducing the tax subsidy. 

For instance, combining a 25 percent tax credit with a 

$500/$1,000 floor would raise donations by $1.5 billion 

and boost federal revenues by $2.4 billion. Other floors 

set sufficiently low could be combined with a deduction 

or a 25 percent tax credit to achieve a similar result. 

If a much smaller credit for all filers, such as 15 percent, 

was combined with a floor, the effect on total donations 

and the total tax subsidy would be more like that of 

adding a floor to the current deduction for itemizers: 

both lower donations and a lower tax subsidy, regardless 

of the range of values used for the floor. In proportional 

terms, the impact on donations would be far smaller than 

the impact on the tax subsidy. With a 15 percent credit 

and a $500/$1,000 floor, charitable contributions would 

decline by 4 percent ($8.6 billion), whereas the tax 

subsidy would decline by 47 percent ($19.0 billion).

The effects of the policy options on tax subsidies would 

also vary by income group. Nonitemizers, who are primarily low- and middle-income taxpayers, would clearly 

gain from the options that extended tax benefits to them. 

Adding either type of floor to a policy option would 

reduce tax subsidies across the board (relative to the comparable option without a floor), but the implications for 

high-income taxpayers would vary significantly between a 

fixed dollar floor and a percentage-of-income floor. With 

a floor set at 2 percent of AGI, for instance, high-income 

taxpayers would find it harder to reach the minimum 

level of contributions required to obtain the tax benefit 

than they would with a fixed $500/$1,000 floor.

CBO estimated the impact of the policy options using 

2006 tax data and assessed each option relative to the tax 

rules in effect for that year, which are largely the same as 

those in effect for 2011.22 (For details about how CBO 

produced the estimates, see Box 2 on page 14.) In calculating an option’s impact on contributions, CBO 

assumed that charitable giving has a price elasticity of 

-0.5, meaning that a 1 percent increase in the after-tax 

price of giving reduces donations by 0.5 percent. Because 

empirical evidence about the size of the elasticity is 

mixed, CBO also analyzed the options assuming a higher 

degree of responsiveness (an elasticity of -1.0) and assuming that charitable contributions are not affected at all by 

the after-tax price of giving (an elasticity of 0).

22. Tax law in both 2006 and 2011 contains the major provisions 

originally enacted in the Economic Growth and Tax Relief 

Reconciliation Act of 2001 and the Jobs and Growth Tax Relief 

Reconciliation Act of 2003. The major difference between the two 

years in terms of the tax treatment of charitable giving is that 2006 

tax law reduced the total value of certain itemized deductions—

including the deduction for charitable contributions—for highincome taxpayers, whereas 2011 law does not have such a 

reduction.
OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING 13

CBO

Table 4.

Total Donations and Tax Subsidies Under Current Law and 

Eleven Policy Options, 2006

Source: Congressional Budget Office.

Notes: The simulation results are for tax year 2006, and all figures are at 2006 levels.

n.a. = not applicable; $500/$1,000 = $500 for individual filers and $1,000 for joint filers; AGI = adjusted gross income.

Floor for 

Eligible 

Donations

Deduction Available 

No floor 203.0 n.a. n.a. 40.9 n.a. n.a.

Keep Deduction Available

Only to Itemizers but 

Option 1 $500/$1,000 202.5 -0.5 -0.2 35.4 -5.5 -13.5

Option 2 2 percent of AGI 200.0 -3.0 -1.5 25.2 -15.7 -38.5

Extend Deduction to 

Option 3 No floor 205.0 2.0 1.0 46.1 5.2 12.8

Option 4 $500/$1,000 203.8 0.8 0.4 38.4 -2.5 -6.1

Option 5 2 percent of AGI 201.1 -1.9 -0.9 27.8 -13.1 -32.1

Convert Deduction to 

Option 6 No floor 205.7 2.7 1.3 48.0 7.1 17.4

Option 7 $500/$1,000 204.5 1.5 0.7 38.5 -2.4 -5.8

Option 8 2 percent of AGI 202.0 -1.0 -0.5 29.0 -11.9 -29.2

Convert Deduction to 

Option 9 No floor 195.2 -7.8 -3.9 27.6 -13.3 -32.6

Option 10 $500/$1,000 194.4 -8.6 -4.2 21.9 -19.0 -46.5

Option 11 2 percent of AGI 193.0 -10.0 -4.9 16.3 -24.6 -60.1

Add Floor

All Filers

25 Percent Nonrefundable

Credit for All Filers

15 Percent Nonrefundable

Credit for All Filers

Percent

Current Law

Only to Itemizers

Options to Change Current Law

(Billions of Billions of (Billions of Billions of

2006 dollars) Dollars Percent 2006 dollars) Dollars

Contributions Current-Law Level Tax Subsidy Current-Law Level

Change in Total Change in

Total Contributions from Tax Subsidy from
14 OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING

CBO

Continued

Box 2.

The Basis for CBO’s Estimates

The analysis presented in this testimony is based on 

the Congressional Budget Office’s (CBO’s) individual 

income tax model, which uses data for 2006. In the 

model, a sample representing all households in the 

United States is constructed by combining information from the Internal Revenue Service’s 2006 

Statistics of Income public-use sample of individual 

income tax returns with information from the Census 

Bureau’s March 2007 Current Population Survey. For 

returns without itemized deductions, CBO estimated 

charitable contributions using surveys in which 

people report their charitable giving (the Federal 

Reserve’s 2004 Survey of Consumer Finances for people giving over $500 and the Bureau of Labor Statistics’ 2002 Consumer Expenditure Survey for those 

giving less than $500). Taxes and tax rates were estimated using CBO’s tax calculator. All estimates are 

for tax year 2006 and reflect the extent to which tax 

subsidies and charitable giving would have been different had a given option been in place in that year.

Calculating the Tax Subsidy for 

Charitable Contributions

This analysis estimates the cost of the tax preference 

for charitable donations by focusing on the change in 

revenues directly attributable to the level of charitable 

giving. That approach contrasts with the type of revenue estimates that are the responsibility of the staff of 

the Joint Committee on Taxation. Such estimates 

would reflect many of the ways in which taxpayers 

might alter their behavior in response to the existence 

of the tax preference, such as changing the timing of 

donations between years and changing their tax compliance. The measure that CBO used does not reflect 

all of the behavioral assumptions that would be 

included in a revenue estimate; it accounts only for 

changes in the amount of charitable giving and any 

changes in itemization status that would occur if the 

standard deduction was larger than a taxpayer’s noncharitable itemized deductions. 

Although CBO’s measure incorporates fewer types of 

responses than a true revenue estimate, it is also less 

sensitive to the design details of an option. Thus, it is 

more suited to portraying the costs of highly stylized 

options such as the ones examined in this analysis. 

Removing the emphasis on design details makes it 

possible to identify the salient characteristics of 

broad approaches to changing the tax treatment of 

charitable contributions.

In this analysis, taxpayers were modeled as choosing 

to itemize deductions or claim the standard deduction under each policy option. The calculations 

assumed that taxpayers would maximize the amount 

of their total deductions. Thus, for example, if the 

deduction for charitable contributions was extended 

to nonitemizers, some taxpayers who had been itemizers would switch to being nonitemizers if that policy change lowered their total tax bill. The cost of 

subsidizing charitable giving under current law and 

the policy options was calculated by comparing the 

amount of income tax owed under a given policy 

with the amount that would be owed if there was no 

deduction for charitable contributions.

For options that include a floor, only the portion of a 

taxpayer’s contributions above that minimum level 

would be eligible for a deduction or a credit. For 

example, under an option with a fixed dollar floor of 

$500 for individual filers and $1,000 for joint filers, a 

couple who itemized their deductions and donated 

$1,500 to charity would be able to claim only $500 

in donations as an itemized deduction on their 

return, and a couple who itemized and donated $750 

would not be able to deduct any of their donations.

Estimating the Effects of Policy 

Options on Giving

To evaluate the impact of each option, CBO estimated how much taxpayers would change the 
OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING 15

CBO

Box 2. Continued

The Basis for CBO’s Estimates

Tax Subsidies Under Current Law, by Income Group, 2006

(Percentage of adjusted gross income)

Source: Congressional Budget Office.

amount they donate in response to a change in the 

after-tax price of giving.1

 The change in contributions was calculated by applying a tax price elasticity 

to existing contributions using the applicable change 

in the after-tax price of giving.2

 That price was estimated by calculating marginal tax rates on charitable 

giving from each individual record in CBO’s income 

tax model under 2006 law and under each policy 

option. For example, under an option that would 

extend the deduction for charitable contributions to 

nonitemizers, a taxpayer in the 25 percent bracket 

who claimed a standard deduction would see his or 

her tax price of giving fall from $1 per dollar of giving 

to 75 cents per dollar of giving, a 25 percent decline. 

Because empirical evidence about the responsiveness 

of taxpayers’ charitable contributions to their tax 

treatment is inconclusive, CBO calculated the results 

using alternative elasticity values (0 and -1.0) in addition to the main value (-0.5) used in the analysis. In 

addition, CBO examined the sensitivity of the results 

to the assumption that a certain amount of contributions—such as regular donations to religious organizations—would be made regardless of changes in 

their after-tax price. CBO also explored the potential 

effects of taxpayers’ shifting donations into different 

years to increase the tax subsidies they receive.

Estimating Differences in Effects by 

Income Level

CBO assessed the distributional implications of the 

policy options by comparing tax subsidy rates (the tax 

subsidy divided by adjusted gross income) for various 

income groups under a given option and under 2006 

law. In 2006, subsidy rates ranged from 0.12 percent 

for taxpayers with adjusted gross income under 

$50,000 to 0.96 percent for taxpayers with income 

above $500,000 (see the figure above). Subsidy rates 

rise with income because higher-income taxpayers are 

more likely to itemize deductions and because the 

after-tax price of giving declines as the marginal 

income tax rate increases with income.

Under 

$50,000

$50,000 to

$100,000

$100,000 to

$200,000

$200,000 to

$500,000

Over 

$500,000

0

0.2

0.4

0.6

0.8

1.0

Adjusted Gross Income

1. This analysis reflects only the change in the relative price of 

charitable contributions. The change in the income tax treatment of charitable contributions would also affect taxpayers’ 

after-tax income. Those income effects are likely to be small, 

however, because charitable contributions average only about 

2 percent to 3 percent of a taxpayer’s income (see Figure 2 on 

page 6). 

2. The tax price elasticity for charitable giving is the ratio of the 

percentage change in giving to the percentage change in its 

after-tax price. For example, a price elasticity of -0.5 means 

that a 1 percent increase in the after-tax price of giving 

reduces donations by 0.5 percent.
16 OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING

CBO

Options 1 and 2: Deduction for Itemizers, 

With a Floor

The first set of options would keep the current itemized 

deduction for charitable contributions but allow only 

contributions in excess of a floor to be deducted. A floor 

would remove the subsidy for smaller donations—most 

of which would probably be made even without a tax 

incentive—but it would maintain the marginal incentive 

to give for people making larger donations. Imposing a 

floor would lower contributions to some extent, because 

some taxpayers who now contribute less than the amount 

of the floor might reduce their donations. A floor could 

also make decisionmaking more complex for taxpayers 

and would provide an incentive for “lumpy” donations, 

in which people donate more in one year and nothing 

in other years in order to maximize their deductible 

contributions.23

Options 1 and 2 would maintain the charitable deduction for itemizers but would introduce different types of 

floors: 

 Option 1 would let itemizers deduct the amount of 

their charitable donations in excess of $500 for 

individual filers and $1,000 for joint filers. 

 Option 2 would let itemizers deduct the amount of 

their charitable donations in excess of 2 percent of 

their AGI.

The tax benefits to itemizers would be less generous 

under Option 1 than under current law; thus, some 

itemizers would choose to take the standard deduction 

rather than continue to itemize their deductions.24

Nonitemizers would be unaffected. For most filers—all 

nonitemizers plus itemizers who donate more than the 

amount of the floor—the after-tax price of the last dollar 

of giving would remain unchanged. However, taxpayers 

who itemize deductions and donate less than the floor 

would no longer have a tax incentive for those donations.25 Overall, donations would be reduced by $0.5 billion (or less than 1 percent), and the tax subsidy would be 

reduced by $5.5 billion (or 14 percent), from the levels 

associated with 2006 tax law (see Table 4 on page 13).

Like the fixed dollar floor, the percentage-of-income floor 

in Option 2 would make benefits to itemizers less 

generous than under current law and would not affect 

nonitemizers. Low-income itemizers would be able to 

reach the minimum contribution level more easily with 

this type of floor than with the fixed dollar floor. 

Although more middle- and high-income itemizers 

would see their after-tax price of giving increase, incentives for large contributors would be virtually unchanged. 

Under this option, donations would fall by $3.0 billion 

(or 2 percent) and the tax subsidy would be reduced by 

$15.7 billion (or 39 percent) from the 2006 levels. 

Almost all of the added revenues in Options 1 and 2 

would come from eliminating the tax subsidy for contributions below the level of the floor by taxpayers who continued to itemize their deductions (see Table 5).

Adding either a fixed dollar floor or a percentage-ofincome floor to the current deduction would lower the 

tax subsidy rate—the total tax subsidy divided by total 

income—for all income groups. Higher-income taxpayers would face a much higher threshold for deducting 

donations with the percentage-of-income floor than with 

the dollar floor. Thus, the change in the tax subsidy for 

higher-income taxpayers would differ significantly 

between the two options. For taxpayers with AGI over 

$500,000, for example, the dollar floor in Option 1 

would decrease their tax subsidy by just 0.02 percent 

of AGI, whereas the percentage-of-income floor in 

Option 2 would lower their tax subsidy by 0.28 percent 

of AGI (see Figure 5).

Options 3 to 5: Deduction for All Taxpayers, 

With or Without a Floor 

Another approach that CBO examined would be to allow 

everyone who files an income tax return to deduct charitable contributions (subject to the rules that now apply to

23. With a $500 floor, for example, a taxpayer who donated $1,000 in 

each of two years would be allowed to deduct a total of $1,000, 

whereas a taxpayer who donated $2,000 in one year and nothing 

the next year could deduct a total of $1,500. The possibility that 

taxpayers will change the timing of deductions in response to a 

floor is an important consideration in designing such a policy.

24. In general, the taxpayers who would no longer choose to itemize 

would be those for whom itemized deductions minus the lesser of 

their charitable contributions or $500 (for individuals) would be 

less than the standard deduction.

25. In addition, there may be some itemizers who have no tax liability 

under current law but would have tax liability under the option 

and would face a reduction in the after-tax price of giving. Those 

few itemizers would have an increased incentive to donate.
OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING 17

CBO

Table 5.

Sources of Changes in Tax Subsidies Under Eleven Policy Options, 2006

Source: Congressional Budget Office.

Notes: The simulation results are for tax year 2006, and all figures are at 2006 levels. The total tax subsidy under 2006 law was $40.9 billion.

$500/$1,000 = $500 for individual filers and $1,000 for joint filers; * = between zero and $50 million; AGI = adjusted gross income.

itemizers, as explained in Box 1 on page 4), under three 

variations: 

 Option 3 would have no floor on the amount of 

donations that could be deducted.26

 Option 4 would have the same fixed dollar floor as 

Option 1 ($500 for single filers and $1,000 for joint 

filers).

 Option 5 would have the same percentage-of-income 

floor as Option 2 (2 percent of AGI).

Under those options, some itemizers would be expected 

to become nonitemizers, because nonitemizers would be 

treated more favorably than under current law, whereas 

the tax treatment of itemizers would not change. Itemizers whose other itemized deductions totaled less than the 

standard deduction would generally benefit from taking 

the standard deduction and claiming the new nonitemized charitable deduction as well. For those taxpayers, the sum of the standard deduction and the new 

deduction for charitable contributions would exceed the 

total itemized deductions they could have claimed under 

Floor for 

Eligible 

Donations

Option 1 $500/$1,000 * 0 -0.1 -5.5 -5.5

Option 2 2 percent of AGI 0.1 0 -0.4 -15.4 -15.7

Option 3 No floor 0.5 3.2 1.6 0 5.2

Option 4 $500/$1,000 0.3 1.3 1.0 -5.0 -2.5

Option 5 2 percent of AGI 0.3 0.9 0.3 -14.7 -13.1

Nonrefundable Credit for All Filers

Option 6 No floor 0.8 4.7 2.5 -0.9 7.1

Option 7 $500/$1,000 0.5 1.9 1.7 -6.5 -2.4

Option 8 2 percent of AGI 0.6 1.5 0.9 -14.9 -11.9

Nonrefundable Credit for All Filers

Option 9 No floor -1.2 2.9 -0.3 -14.8 -13.3

Option 10 $500/$1,000 -1.2 1.1 -0.8 -18.2 -19.0

Option 11 2 percent of AGI -1.0 0.9 -1.3 -23.2 -24.6

Source of Change in Tax Subsidy (Billions of dollars)

Existing Existing Giving by Itemizers

Change in Giving by Who Switch to Who Remain 

Net

Giving Nonitemizers Being Nonitemizers Itemizers Total

Keep Deduction Available 

Only to Itemizers but Add Floor

Extend Deduction to All Filers

Convert Deduction to 25 Percent 

Convert Deduction to 15 Percent 

26. The President’s budgetary proposals for fiscal years 2002 through 

2005 included a charitable deduction for nonitemizers. Those 

proposals were more restrictive than the option analyzed here, 

which would allow nonitemizers to subtract all of their charitable 

contributions from their AGI (subject to the same restrictions as 

itemizers) in addition to claiming the standard deduction. See 

Office of Management and Budget, Budget of the U.S. Government

for those years; also see Congressional Budget Office, Budget 

Options (February 2007), Revenue Option 11, “Create an Abovethe-Line Deduction for Charitable Giving”; and Congressional 

Budget Office, Effects of Allowing Nonitemizers to Deduct Charitable Contributions (December 2002).
18 OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING

CBO

Figure 5.

Changes in Tax Subsidies Under Eleven Policy Options, by Income Group, 2006

(Percentage of adjusted gross income)

Source: Congressional Budget Office.

Notes: The simulation results are for tax year 2006, and all figures are at 2006 levels. 

* = between -0.005 percent and 0.005 percent.

Option 11

Option 10

Option 9

Option 8

Option 7

Option 6

Option 5

Option 4

Option 3

Option 2

Option 1

-0.64

-0.61

-0.41

-0.15

0.03

-0.50

-0.49

-0.32

-0.11

0.03

-0.49

-0.45

-0.24

0

0.12

-0.38

-0.47

-0.26 0.00

0.12

-0.15

-0.26

-0.11

0.08

0.13

-0.14

-0.19

0.02

0.26

0.28

-0.28

-0.36

-0.25

-0.10

0.02

-0.01

-0.08

-0.09

-0.03

0.03

0.01

0.01

0.05

0.10

0.12

-0.28

-0.36

-0.28

-0.15

-0.04

-0.02

-0.09

-0.12

-0.09

-0.03

Over $500,000

$200,000 to $500,000

$100,000 to $200,000

$50,000 to $100,000

Under $50,000

• Deduction for itemizers

• $500/$1,000 floor for single/joint filers

• Deduction for itemizers

• 2 percent of AGI floor

• Deduction for all taxpayers

• No floor

• Deduction for all taxpayers

• $500/$1,000 floor for single/joint filers

• Deduction for all taxpayers

• 2 percent of AGI floor

• 25 percent credit for all taxpayers

• No floor

• 25 percent credit for all taxpayers

• $500/$1,000 floor for single/joint filers

• 25 percent credit for all taxpayers

• 2 percent of AGI floor

• 15 percent credit for all taxpayers

• $500/$1,000 floor for single/

 joint filers

• 15 percent credit

 for all taxpayers

• 2 percent of

 AGI floor

• 15 percent credit for all taxpayers

• No floor

Adjusted Gross Income:

*

*
OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING 19

CBO

2006 law.27 Taxpayers making that change would not be 

expected to alter their giving, however, because itemization status would not affect their after-tax price of giving.28 The only group of taxpayers who would see their 

after-tax price of giving fall—and would possibly increase 

their charitable donations as a result—would be nonitemizers with positive tax liability, who could take 

advantage of the more broadly available deduction.29

Extending the charitable deduction to nonitemizers 

without any contribution floor, as in Option 3, would 

increase donations by $2 billion (or 1 percent), CBO 

estimates (see Table 4 on page 13). The tax subsidy 

would increase by $5.2 billion (or 13 percent), of which 

$3.2 billion would go to subsidize existing contributions 

by nonitemizers (see Table 5 on page 17). Another large 

piece of the increase in the tax subsidy, $1.6 billion, 

would result from itemizers’ choosing to take the standard deduction because it exceeded their noncharitable 

deductions.30 The net change in giving would account for 

only $0.5 billion of the increase in the total tax subsidy.

Combining a floor with a deduction for all taxpayers 

would produce tax savings for the government while 

having relatively small effects on total donations. With 

the fixed dollar floor in Option 4, total contributions 

would increase by $0.8 billion (or less than 1 percent), 

whereas the tax subsidy would decline by $2.5 billion 

(or 6 percent). The subsidy for taxpayers who continued 

to itemize their deductions would fall by $5.0 billion, but 

those savings would be partly offset by new tax subsidies 

of $1.3 billion for existing contributions by nonitemizers, 

$1.0 billion for former itemizers who claimed the standard deduction instead, and $0.3 billion for the net 

change in donations. 

With a floor set at 2 percent of AGI, as in Option 5, total 

contributions would decline by $1.9 billion (or nearly 

1 percent), and the total tax subsidy would drop by 

$13.1 billion (or 32 percent). The reduction in the tax 

subsidy from excluding itemizers’ charitable contributions below the floor would amount to $14.7 billion, 

almost triple the $5 billion in tax savings from the same 

source under the similar option with the dollar floor 

(Option 4). Those tax savings would be partly offset by 

new tax subsidies of $0.9 billion for existing contributions by nonitemizers, $0.3 billion for former itemizers 

who claimed the standard deduction instead, and 

$0.3 billion for the net change in giving. 

Low- and middle-income taxpayers would be the main 

beneficiaries of extending the charitable deduction to 

nonitemizers because they make up the bulk of people 

who do not itemize deductions. Option 3 would raise the 

tax subsidy by 0.12 percent of AGI for taxpayers with 

income below $50,000 and by 0.10 percent of AGI for 

those with income between $50,000 and $100,000 (see 

Figure 5 on page 18). Taxpayers with AGI above 

$100,000 would have a much smaller increase in their 

tax subsidy rate (0.02 percent for that group as a whole). 

Adding a floor to the deduction for all filers would still 

increase the subsidy for taxpayers with income under 

$50,000 but by a smaller amount: 0.03 percent of AGI 

under Option 4 and 0.02 percent under Option 5. As in 

the options to add a floor to the current deduction for 

itemizers, upper income groups would see a larger reduction in their tax subsidy with a percentage-of-income 

floor than with a fixed dollar floor. 

27. Under the options considered here, the incentive to switch itemization status would not exist for taxpayers paying the individual 

alternative minimum tax (AMT), because the standard deduction 

is not allowed for taxpayers paying the AMT. (Fewer than 3 percent of filers were subject to the AMT in 2006.) Also, the existing 

limit on itemized deductions for high-income taxpayers (those 

with AGI over $150,500 in 2006) could give some taxpayers an 

additional incentive to switch itemization status under options 

that would allow charitable deductions by nonitemizers, if that 

limit did not apply to deductions by nonitemizers. This analysis 

assumed that the limit would also apply to charitable deductions 

claimed by nonitemizers and therefore would not provide an 

additional incentive to change itemization status. 

28. That statement is based on the assumption that behavioral effects 

resulting from changes in income would be small. It also ignores 

the fact that a small fraction of taxpayers would move into a lower 

marginal tax bracket because of the change in itemization status. 

29. For that group, the after-tax price per dollar of giving would fall 

from $1 to [$1 x (1 - their marginal tax rate)]. For most of those 

taxpayers, the average and marginal price per dollar of giving 

would be the same. However, deducting charitable donations 

could move some taxpayers to a lower tax bracket, in which case 

their marginal price of giving would exceed their average price of 

giving. 

30. Under the options that would extend tax incentives to nonitemizers without adding a floor (Options 3, 6, and 9), roughly 

10 percent of itemizers would switch to the standard deduction, 

CBO estimates.
20 OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING

CBO

Options 6 to 8: Nonrefundable 25 Percent Credit for 

All Taxpayers, With or Without a Floor 

An alternative way to extend tax benefits for charitable 

giving to all filers would be to convert the current deduction into a nonrefundable tax credit equal to a percentage 

of a taxpayer’s contributions.31 The credit could be 

various sizes. In this set of options, CBO examined the 

effects of a credit equal to 25 percent of donations, with 

the same three variations used earlier: 

 Option 6 would have no floor that donations would 

have to exceed to qualify for the credit.

 Option 7 would have the same fixed dollar floor as 

Options 1 and 4 ($500 for individuals and $1,000 for 

joint filers).

 Option 8 would have the same percentage-of-income 

floor as Options 2 and 5 (2 percent of AGI).

Substituting a nonrefundable credit for the current 

deduction would provide the same subsidy (per dollar of 

giving) to all taxpayers who could fully claim the credit, 

instead of a subsidy rate that increases with a filer’s marginal tax rate. A 25 percent nonrefundable credit would 

tend to benefit lower- and middle-income taxpayers, who 

generally face marginal tax rates of less than 25 percent. 

Taxpayers facing tax rates above 25 percent would see a 

decrease in subsidies under this option. As a result, 

replacing the current deduction with a 25 percent credit 

would probably increase the share of total income taxes 

paid by higher-income people. 

Taxpayers would respond in several ways if the itemized 

deduction for charitable contributions was replaced with 

a nonrefundable tax credit. Current itemizers whose 

noncharitable deductions total less than the standard 

deduction would generally no longer choose to itemize. 

The after-tax price of giving would rise for itemizers 

facing marginal tax rates above 25 percent, creating an 

incentive for them to reduce contributions, whereas the 

after-tax price would fall for itemizers facing marginal tax 

rates below 25 percent, creating an incentive for them to 

increase contributions. Nonitemizers with positive tax liability would generally face a lower after-tax price of giving 

under this option and thus would also have an incentive 

to raise their contributions. The overall effect on donations would depend on whether the increased giving by 

people whose after-tax price of giving fell would exceed 

the decreased giving by people whose after-tax price rose. 

CBO estimates that with a 25 percent credit and no 

floor (Option 6), total contributions would increase by 

$2.7 billion (or 1 percent)—about 35 percent more than 

the increase from extending the charitable deduction to 

all taxpayers without a floor (Option 3). The tax subsidy 

for charitable giving would rise by $7.1 billion (or 17 percent), of which only $0.8 billion would result from the 

net change in donations. Most of the cost increase to the 

government ($4.7 billion) would come from subsidizing 

existing contributions by nonitemizers; another $2.5 billion would result from former itemizers who would 

choose to take the standard deduction (see Table 5 on 

page 17). Among taxpayers who continued to itemize 

deductions, the increased tax subsidy for those with marginal tax rates below 25 percent would be slightly less 

than the reduced subsidy for those with marginal rates 

above 25 percent, resulting in a net decrease of $0.9 billion in the tax subsidy for that group. 

If the credit applied only to contributions above the fixed 

dollar floor in Option 7, total donations would increase 

by $1.5 billion (or less than 1 percent), and the total tax 

subsidy would decline by $2.4 billion (or 6 percent). 

With the percentage-of-income floor in Option 8, total 

contributions would decrease by $1.0 billion (or less than 

1 percent), and the tax subsidy would drop by $11.9 billion (or 29 percent). Under both of those options, 

increases in the tax subsidy from existing donations and 

from the net change in giving would be outweighed by a 

reduction in the subsidy from excluding tax benefits for 

contributions below the floor.

A nonrefundable tax credit for charitable giving available 

to all filers would favor low- and middle-income taxpayers even more than a deduction for all filers would. 

The reason is that the after-tax price of giving would be 

the same for all taxpayers rather than being lower for 

people with higher marginal income tax rates. 

Option 6 would increase the tax subsidy for people with 

income under $100,000 by approximately 0.3 percent 

of AGI and for people with income between $100,000 

and $200,000 by 0.02 percent of AGI (see Figure 5 on 

page 18). Taxpayers with AGI above $200,000 are likely 

31. Nonrefundable tax credits are limited to the amount of a person’s 

tax liability before credits. Refundable credits, such as the earned 

income tax credit, can exceed tax liability before credits and result 

in a refund payment from the government to the taxpayer.
OPTIONS FOR CHANGING THE TAX TREATMENT OF CHARITABLE GIVING 21

CBO

to have marginal income tax rates greater than 25 percent. Consequently, their tax subsidy would fall under 

Option 6—by 0.19 percent of AGI for taxpayers with 

income between $200,000 and $500,000 and by 

0.14 percent of AGI for those with income over 

$500,000.

Under the options that include a floor, the decrease in tax 

subsidy rates would be concentrated among taxpayers 

whose AGI was above $100,000. That decrease would 

equal 0.16 percent of AGI under Option 7 and 0.35 percent of AGI under Option 8. For taxpayers with income 

below $100,000, by contrast, the tax subsidy would 

increase by approximately 0.1 percent of AGI under both 

options.

Options 9 to 11: Nonrefundable 15 Percent Credit 

for All Taxpayers, With or Without a Floor

The last three options in CBO’s analysis are similar to 

Options 6 to 8 but with a smaller credit. They would 

replace the current deduction with a tax credit equal to 

15 percent of a taxpayer’s donations, with the following 

differences: 

 Option 9 would have no floor.

 Option 10 would have the same fixed dollar floor as 

Options 1, 4, and 7 ($500 for individuals and $1,000 

for joint filers). 

 Option 11 would have the same percentage-of-income 

floor as Options 2, 5, and 8 (2 percent of AGI).

The size of a tax credit for charitable giving affects not 

just the magnitude but the direction of the effects. A 

15 percent credit with no floor would decrease donations 

relative to 2006 law (by $7.8 billion, or 4 percent), 

whereas a similar 25 percent credit would increase donations relative to 2006 law (by $2.7 billion, or 1 percent). 

Adding either type of floor to the 15 percent credit would 

reduce donations by slightly larger amounts—and, again, 

would result in fewer contributions than the comparable 

options with a 25 percent credit. In all three cases, total 

donations would be about 5 percent lower under the 

options with a 15 percent credit than under the analogous options with a 25 percent credit because the smaller 

credit would provide smaller tax incentives for charitable 

giving. 

The same pattern would occur for the total tax subsidy, 

but the changes would be larger. With a 15 percent credit 

and no floor (Option 9), the tax subsidy would fall by 

$13.3 billion (or 33 percent) relative to 2006 law, 

whereas with a 25 percent credit and no floor, the tax 

subsidy would rise by $7.1 billion (or 17 percent). Adding the $500/$1,000 floor (Option 10) would reduce the 

tax subsidy even more, by $19.0 billion (or 47 percent) 

relative to 2006 law, compared with a $2.4 billion reduction under the same fixed dollar floor and a 25 percent 

credit. With a floor equal to 2 percent of AGI (Option 

11), the 15 percent credit would reduce the tax subsidy 

by $24.6 billion (or 60 percent), compared with an 

$11.9 billion decrease under the comparable option with 

a 25 percent credit. Virtually all of the reduction in the 

subsidy would come from eliminating tax benefits for 

charitable contributions below the floor.

Relative to 2006 law, taxpayers with AGI under $50,000 

would see a small increase in their subsidy rate under all 

of the options with a 15 percent credit. That increase 

would equal 0.12 percent of AGI with the credit alone 

and 0.03 percent with the credit plus a floor. Taxpayers 

whose AGI was between $50,000 and $100,000 would 

see virtually no change in their subsidy rate with the 

15 percent credit alone but a decrease equal to 0.11 percent of AGI with the fixed dollar floor or 0.15 percent of 

AGI with the percentage-of-income floor. All three variants of the 15 percent credit would decrease subsidy rates 

for income groups above $100,000, with the largest 

reductions in this analysis coming from combining that 

credit with a floor of 2 percent of AGI.