The federal government subsidizes charitable contributions for those taxpayers who have positive tax liability and itemize their deductions. However, especially since the passage of the 2017 Tax Cuts and Jobs Act, few taxpayers itemize, and those that do tend to have higher incomes – limiting the progressivity of the deduction. Replacing the charitable contribution deduction with a tax credit is one solution, but that would still only affect donors that file federal returns and owe taxes. This brief considers an alternative: matching grants to nonprofit organizations. A grant system would require neither that donors file returns nor owe taxes, and research also suggests that donors are more incentivized by grants than by equivalent deductions. Contributions to religious organizations pose one complication to this solution, but a carefully designed program could avoid them.
Display Date
File
File
(290.75 KB)