To economists, the tax deduction for charitable contributions is equivalent to a government grant matching private donations that increases with income.
So when the top tax rate increased to 39.6 percent from 35 percent, as it did last week, so did the power of the charitable deduction. For taxpayers in the new top bracket, the after-tax cost of contributions dropped by 7 percent, according to the nonpartisan Tax Policy Center in Washington.
That will encourage people to donate money to nonprofits rather than pay it in taxes.
Combined with other changes, the center estimates that the tax increases passed by Congress last week will increase charitable giving by 1.3 percent, or $3.3 billion.