Eliminate the Charitable Contributions Deduction

The tax code features two deductions for charitable contributions. The larger of the two is an itemized deduction, which is subject to two major limitations. Taxpayers can only deduct their charitable contributions that exceed 0.5 percent of their adjusted gross income, and taxpayers may only deduct cash charitable contributions of up to 60 percent of their adjusted gross income, and only 50 percent for non-cash contributions. The One Big Beautiful Bill Act of 2025 also introduced a new limit to all itemized deductions, limiting their maximum benefits to 35 cents per dollar of deduction, even for taxpayers in the top tax bracket of 37 percent.

This option repeals the itemized deduction for charitable contributions. Repealing the deduction would increase marginal tax rates on tax filers, reducing returns to work and investment. Further, by indirectly reducing the value of other itemized deductions, like the mortgage interest deduction and state and local tax (SALT) deduction, it would also raise the cost of capital for owner-occupied housing, reducing investment. Notably, the effects of this option are smaller after 2029, as the SALT deduction limit returns to $10,000 then, which reduces the number of taxpayers who benefit from the charitable contribution itemized deduction.

On a conventional basis, this option would decrease the primary deficit by $481.3 billion over the budget window. Long-run GDP would fall by 0.2 percent, and long-run GNP would fall by 0.1 percent. On a dynamic basis, the primary deficit would decrease by $330.9 billion from 2027 through 2036, $150.4 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 174.0 percent by 2056.

On average, in 2036, taxpayers would see decreases in their after-tax incomes of 0.2 percent. The top quintile of taxpayers would experience a 0.3 percent decrease, while the bottom quintile would be unaffected. On a long-run dynamic basis, taxpayers would see a 0.3 percent decrease on average.