It occurred to me this morning that Trump’s tax plan, if it passed in its current form, would impact many middle- (and some high-) income U.S. Mormons.[fn1] I mean, it would affect U.S. taxpayers in general, but it would have a particular effect on the deductibility of tithing.
And why might that be? Basically, because it reduces the cost of charitable giving, at least for taxpayers who itemize their deductions (more on that in a minute). For example, imagine I’m in the 25-percent tax bracket and I itemize. If I write a tithing check for $1,000, I’ve made a $1,000 charitable donation, and the church has an additional $1,000. But the after-tax cost to me of that donation was $750.
Why? Because my $1,000 donation also gave me a $1,000 tax deduction, which reduced my taxes by ($1,000 x my marginal tax rate) = $250. In other words, the charitable tax deduction makes it less expensive for me to be charitable.
Trump is proposing two changes that would reduce the effective subsidy, though:
Raise the Standard Deduction
Trump has proposed raising the standard deduction. This year, a married couple filing jointly has a standard deduction of $12,600.[fn2] Trump would raise the standard deduction to $30,000. (Essentially, this means that nobody would pay any taxes on their first $30,000 of income.)
But here’s the thing: either you take the standard deduction or you itemize. And you only itemize if your itemized deductions exceed the standard deduction. And the big three itemized deductions are charitable donations, home mortgage interest, and state and local taxes.[fn3] So if you don’t have at least $30,000 of mortgage interest, charitable donations, and state and local taxes, you won’t itemize; you’ll take the standard deduction.
That’s fine, but it means you bear the full cost of your charitable donations. There is no federal subsidy for them.
That’s not the end of the world, of course. Only about one-third of American taxpayers currently itemize, though it’s closer to 40 percent in Utah. By doubling the standard deduction, a much smaller percentage of Americans (and Utahns and Mormons) will be able to itemize. How will that affect Mormons’ tithe-paying? No idea, but it will raise the after-tax cost of giving.
Cap on Itemized Deductions
Trump has also proposed capping itemized deductions at $200,000.
So that doesn’t affect me, and it probably doesn’t affect you. In fact, it would affect fewer than 400,000 taxpayers. But some of those taxpayers are likely to be tithe-paying Mormons. After all, if you earn more than $2 million in titheable income, you’ll only be able to deduct the first $200,000 of tithing you pay. (Quick aside: in the famous words of Tevya, if money like that is a curse, “May the Lord smite me with it. And may I never recover.”) The tremendously wealthy Mormons, then, will bear a higher after-tax cost for their tithing than those of us who fall somewhere between not itemizing and not earning millions of dollars annually.
How Will This Affect the Church?
No idea. Charitable giving is elastic, though I’m not sure if there are any studies specifically about the elasticity of religious giving, or of Mormon giving.[fn4] Maybe its only result will be that many of us have slightly less after-tax money than we do under the current tax system. Or maybe our giving goes down. Or maybe it goes up, for some reason (though that seems unlikely).
Regardless, though, if Trump’s tax proposals end up enacted into law, they will have a real effect on Mormons.
[fn1] (And yes, I get that the effects of his tax plan on Mormons aren’t, perhaps, the most pressing thing about the president-elect. But taxes are what I do.)
[fn2] There are other standard deduction amounts for unmarried individuals, married couples filing separately, and heads of household, but to make the post simpler, I’m going to stick with married filing jointly. The same patterns hold for others, only with different dollar amounts.
[fn3] And the House Republican tax plan would eliminate the state and local tax deduction.
[fn4] (I suspect there are of the former, though not of the latter.)