Limit the Deduction for Charitable Giving

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2023–
Decrease (-) in the Deficit                        
  Limit deductibility to charitable contributions in excess of 2 percent of adjusted gross income -3.3 -16.5 -17.2 -20.6 -31.9 -33.4 -34.9 -36.3 -37.9 -39.5 -89.5 -271.5
  Limit deductibility to cash contributions -3.5 -17.7 -19.2 -21.9 -28.2 -30.0 -31.8 -33.3 -34.9 -36.6 -90.5 -257.0

Data source: Staff of the Joint Committee on Taxation.

This option would take effect in January 2023.

Taxpayers who itemize can deduct the value of their contributions to qualifying charitable organizations. Two restrictions apply to the deduction. First, deductible charitable contributions may not exceed a certain percentage of a taxpayer's adjusted gross income (AGI). (AGI includes income from all sources not specifically excluded by the tax code, minus certain deductions.) The second restriction, which was temporarily lifted but will resume in 2026, reduces the total value of certain itemized deductions—including the deduction for charitable donations—for taxpayers with higher income.

This option consists of two alternatives that would limit the deduction for charitable donations. Under the first alternative, only the amount of a taxpayer's contributions that exceeded 2 percent of his or her AGI would be deductible. Under the second alternative, the deduction would be eliminated for noncash contributions. Both alternatives would be limited to taxpayers who itemize, and higher-income taxpayers would still be subject to the additional reduction in the total value of certain deductions after 2025.