February 20, 2018

After much drama and speculation, Congress finally passed a revised tax code which President Donald Trump signed into law on December 22. All provisions therein took effect on January 1. As was expected, the vote was along party lines, with Republicans voting for it and Democrats against.

When the bill was being debated, many non-profit organizations and associations lobbied hard against it, saying it would cost charities billions since fewer people would be itemizing their deductions. Such predictions remain in place now that the law has passed, with one study predicting that donations will fall by $13 billion or 4.5% of what was given in the most recent year.   

Is this prediction correct? More on that in a moment, but let’s first selectively review how the law will affect individuals and households.

What’s Changed
Probably the biggest change in 2018 is the nearly doubling of the standard deduction from $6,350 for single filers to $12,000 and $12,700 to $24,000 for joint filers. For the middle class especially, this is a tremendous tax break.

It also means that the number of people who itemize their returns will be greatly reduced. As a result, the number of people who qualify for charitable deductions is expected to fall from 30% of filers to possibly only 5%. Therefore, from strictly a tax deduction standpoint, there will be no incentive for many folks to give. Of course, by lowering taxes, this change also means people will have more disposable income which can be spent, saved, and donated (or a combination of all three).

Additionally, with the exception of the lowest level of 10%, marginal tax rates have been reduced. For example, a household earning roughly $90,000 jointly was in a 25% tax bracket in 2017. In 2018, it will be 22%. Likewise, joint taxpayers earning $165,000 in 2017 were in a 28% bracket but now will be in a 24% one (and so forth).

Granted, from exclusively a tax standpoint, if someone who itemizes gives $100 to charity, they will be able to deduct $3 or $4 less now than before. However, it’s not as if it was $25 or $30 less. Is this really going to keep people from giving?

Another area to highlight is the estate tax. In 2017, federal estate tax could be incurred if gross assets remaining exceeded $5.49 million individually or $10.98 million for a married couple. In 2018, this has more than doubled to $12.2 million for individuals and $24.4 million for married couples. Question: Will this impact a lot of folks? The answer is not many at all. Before the change, only one tenth of 1% of households had a taxable estate. This presumably now will fall into the one hundredths of 1%. In short, the estate tax as it applies generally in society has been effectively eliminated.   

What Hasn’t Changed
Not everything was changed by Congress. For example, qualified charitable distributions from IRAs remain unchanged. So, individuals 70½ and older subject to required minimum distribution from their IRA can still donate up to $100,000 to public charities (and ministries) without paying income tax on the same. Of course, avoidance of income tax is the benefit. There is and has not been any income-tax deduction available in this case. Likewise, long-term capital gains rates are unchanged. So, a couple earning $100,000 who donates appreciated stock to a ministry instead of selling it may avoid paying 15% capital gains tax.   

Will Giving Decrease?
I’m always concerned about being a false prophet, especially knowing what happened to them in ancient times as told in the Old Testament! With gifts to religious organizations accounting for between two-thirds and three-fourths of charitable giving each year, however, I don’t believe that most ministries will be affected. I believe this will especially be the case for those that people are dedicated to and passionate about. Knowing souls are being saved is the strongest incentive I can think of to give. In the case of Lutherans For Life, it is not only souls but lives also that are being saved. To God be the glory! 

We certainly hope LFL can count on your continued support this year. In the end, lives and souls aren’t something that involve a deduction, tax break, marginal rate, itemization, exemption, etc. They are priceless gifts of God.

May we extend all our best in Jesus Christ to you and yours for the remainder of 2018.