Accounting for Trends in Charitable Tax Deductions: Framework and Application to the District of Columbia

Charitable tax deductions are one of the largest tax expenditures at the state and federal levels, and they are also crucial for the sustainability of the charitable nonprofit sector. Understanding some of the factors that drive changes in charitable tax deductions over time is needed to inform policy. This paper uses a simple multiplicative decomposition to analyze trends in charitable tax deductions with an application to data from the District of Columbia over the period 2001-2011, thus including the recent recession. The decomposition shows how changes in the District’s population, the share of the population that files tax returns, the share of filers that claim the deduction, the average adjusted gross income of filers, and the average deduction claimed by claimants all contributed to the overall changes in the level of the deductions. The decomposition is applied for the District’s population as a whole as well as by income group.