Senator Booker’s Costly Standard Deduction Proposal Would Reduce Charitable Giving

Senator Cory Booker (D-NJ) recently proposed a bold tax plan that includes drastically increasing the standard deduction from $16,100 to $37,500 for single filers ($32,200 to $75,000 for married couples filing jointly). Senator Booker’s plan would also expand the child tax credit and the earned income tax credit and offset the cost of these tax cuts by raising taxes on businesses. By our estimation, this standard deduction increase would modestly improve filing complexity for a small number of households but would significantly reduce tax revenue and charitable giving.

Each year, taxpayers can choose to either claim the standard deduction or itemize their deductions (i.e., home mortgage interest expense, charitable contributions, state and local taxes up to $40,000, medical expenses in excess of 7.5 percent of income, and casualty and theft losses). Taxpayers generally choose to itemize if the total of their deductions exceeds the standard deduction.

Currently, about 11 percent of all households itemize their deductions. While fewer than three percent of tax filers with incomes below $100,000 itemize, 67 percent of taxpayers with incomes between $500,000 and $1 million itemize.

Such a large increase in the standard deduction would reduce revenue significantly. Using AEI’s Tax-Calculator microsimulation model, we estimate that the 10-year revenue loss of Senator Booker’s standard deduction proposal would be $5.6 trillion. For context, the Congressional Budget Office projected that the One Big Beautiful Bill would reduce federal revenue by $4.5 trillion. Senator Booker proposes “raising the corporate tax rate, strengthening the corporate tax rules, increasing taxes on stock buybacks, tightening limits on executive compensation deductions, and other measures to return fairness to our tax system.” But it is not clear that these tax increases would raise enough revenue to offset the cost of more than doubling the standard deduction, not to mention the economic harm these business tax changes would cause.

Raising the standard deduction would simplify filing, but only for a small number of taxpayers near the top of the income distribution. We estimate that the share of itemizers would drop from 11 percent to 2.5 percent. However, 78 percent of those who switch from itemizing to the standard deduction are in the top income quartile since lower- and middle-income households overwhelmingly claim the standard deduction already.

The distributional impact of the tax relief from Senator Booker’s standard deduction increase follows a similar pattern (see the figure below). After-tax income would rise marginally for the bottom 30 percent of tax filers. Middle-income households (the fifth and sixth decile of earners) would see, on average, a 2.2 percent boost in their after-tax income. The benefit climbs for higher-income households. Those in the eighth and ninth decile would see nearly double the boost in their after-tax income. This is because the tax benefit is proportional to a taxpayer’s statutory rate, which rises with income. The highest-income households (the top decile) would see less of a boost because many of these taxpayers already itemize their deductions and would not benefit.

Senator Booker’s proposed increase in the standard deduction would also have important behavioral implications. For example, the larger standard deduction would remove the tax advantage of charitable giving for taxpayers who may have otherwise itemized and claimed a deduction for their donations. Affected taxpayers generally face relatively high statutory tax rates and, thus, have a relatively high giving incentive under current law. We estimate that total individual charitable giving would decline by approximately $28 billion, assuming standard price and income elasticities from the academic literature.

Increasing the standard deduction as part of tax reform is not a new idea. In 2017, the Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction to $12,000 (single filers) and $24,000 (married filing jointly). However, magnitude matters. First and foremost, the cost of TCJA’s standard deduction increase was significantly less, approximately $100 billion per year, or one-fifth the cost of the Booker proposal. Second, Senator Booker’s standard deduction increase would reduce charitable giving by nearly 50 percent more than the TCJA increase: $28 billion versus $18.3 billion (the original estimate of $14.2 billion adjusted for inflation). As taxpayers prepare to file their 2025 returns, tax burdens and tax complexity are on many peoples’ minds. The political appeal of Senator Booker’s proposal may be apparent, but its impact on the federal budget makes it unwise. Furthermore, lawmakers should carefully consider other economic impacts such as its negative implications for charities.

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