The finding can be summarized as follows:
- The combination of lowering the top tax rate and raising the standard deduction will reduce donations by about $13.1 billion.
- The reduction can be offset by adding a non-itemizer deduction.
For those persons that donate a lot, including many that donate large amounts to churches, C is greater than S. To deduct $C, they must give an item-by-item account of all the donations that added to $C when filing their taxes, and so they are called itemizers. The person that uses S does not need to provide the item-by-item accounting, so that person is called a non-itemizer. Currently, only itemizers are able to deduct their actual charitable giving. Non-itemizers can still give to charity, but they just cannot deduct it from their taxes.
Notice that if you are an itemizer, then every additional dollar you give increases the amount you can deduct. That is, the additional dollar you donate costs you less than a dollar because you get some of it back in the form of lower taxes. However, if you are a non-itemizer, then every additional dollar costs you a full dollar because you are just using the standard deduction of $S. So giving the extra dollar costs more to the non-itemizer than it does to the itemizer.
If the standard deduction amount S is increased, then more people will find themselves in the position where the additional dollar donated costs the full dollar instead of less than a dollar. This in turn will lead to several people reducing the amounts they donate. It might not sound like a big deal, but when millions of people each donate a little bit less, it can add up to billions of dollars -- $13.1 billion in the example the study provides.
One way to counter the drop in donations is to allow non-itemizers to deduct their charitable donations in addition to using the standard deduction. In fact, the drop in donations from raising S can be fully offset if non-itemizers are allowed to deduct their donations.
There is no consensus on what is best. Some people think that the deductions are good because they think religion creates many positive externalities. Some people think that the deductions are bad because they essentially allow people to shift money that could go the government and into their own individually-preferred activities. There are still other opinions. What do you think?