This was an eventful week at the intersection of philanthropy and public policy! Over 200 philanthropic leaders gathered in D.C. for the first annual Philanthropy Week in Washington, President Obama released his Fiscal Year 2015 Budget with proposed changes that impact the sector, commentary wrapped up on the IRS’s proposed 501(c)(4) political activity regulations, and of course, we’re still digging into the depths of Chairman Camp’s tax reform bill which includes many provisions related to tax-exempt organizations.
These tax policy developments provided the perfect platform for participants to underline the main messages of the week: Thriving Philanthropy equals Thriving Communities; Tax Policy Matters; and Community Philanthropy – Community Solutions.
Throughout the week, foundation leaders were able to share stories of the impact they have in their communities. And, they delivered a clear message to lawmakers on Capitol Hill: changes to charitable giving incentives would cause donations to decline by billions of dollars, stifling philanthropy’s effect during a time when communities are still struggling to overcome the recession. We'll be posting additional details on the events and activities of this week, along with great photos, on our webpage. Check in soon.
We would like to extend a warm thank you to all participants for your enthusiastic presence at the first annual Philanthropy Week, and to our colleagues at the Forum of Regional Associations of Grantmakers for a successful Foundations on the Hill and the Alliance for Charitable Reform for another great Summit for Leaders. We truly appreciate your active engagement on federal policy issues that matter for philanthropy. Remember—your voice matters!
President Obama’s Budget for fiscal year 2015 came out amidst an activity-filled week. While the Budget provides important insights into the President’s spending and policy priorities for the coming year and is likely to help shape the political debate, Congress isn’t likely to act on it. House Budget Committee Chairman Paul Ryan (R-WI-1) will issue his own budget proposal that will differ fundamentally from the President’s. Meanwhile, the Senate Budget Committee, led by Senator Patty Murray (D-WA) has already said it will not produce a Senate budget this year, deferring to the spending levels set forth in last year’s 2-year budget agreement between Senator Murray and Congressman Ryan.
The proposals in the Budget focus on three White House goals: accelerating economic growth, expanding opportunity for all Americans, and reducing deficits. To cover the cost of these proposals, the Administration seeks to close certain “tax loopholes” it views as providing a particular benefit to the wealthy, such as the carried interest deduction. The Budget also makes new investments in infrastructure repair, job training, manufacturing innovation, energy efficiency, a climate resiliency fund, preschool education, and the recently-announced My Brother’s Keeper’s Initiative, a public-private partnership that will engage a coalition of philanthropic leaders in a task force committed to leveraging philanthropy’s role in improving life outcomes for boys and men of color. Nonprofit Quarterly breaks down other specific program funding levels in the Budget that impact nonprofits.
The President again proposes to cap the charitable deduction at 28 percent—a proposal that the Council staunchly opposes. Yet, the charitable deduction has strong advocate in Senator John Thune, a member of the Senate Finance Committee. Senator Thune opened his remarks at a hearing on Treasury’s proposed fiscal year 2015 budget this week by acknowledging the letter he coauthored with Finance Chairman Ron Wyden (D-OR) urging their Senate colleagues to preserve the full value of the charitable deduction letter, which he noted got 33 signatures. While Treasury Secretary Jack Lew and Senator Thune disagreed on the potential impact of the proposed charitable deduction cap, Secretary Lew emphasized that the Administration recognized the value of charitable giving.
The Budget also reintroduces a simplification of the private foundation excise tax at 1.35 percent, and mandates electronic return filing for tax-exempt organizations by imposing a penalty on those organizations that continue to paper file. Vikki Spruill, the Council’s President and CEO, made a statement on the proposed Budget:
The Council on Foundations recognizes the powerful potential of public-philanthropic partnerships, like the President’s proposed My Brother’s Keeper initiative. The philanthropic community looks forward to working with the Administration to create innovative and collaborative solutions to the challenges facing our country, particularly in expanding opportunity for boys and men of color.
The Council supports the President’s proposal to simplify the private foundation excise tax to a single flat rate. We have long argued that a single flat rate will simplify the tax laws and will increase charitable activity. We would prefer to see a flat rate of one percent, the rate proposed by House Ways and Means Chairman Dave Camp (R-MI-4) in his recent “Tax Reform Act of 2014” bill. As tax reform decisions are made, the Council will work with lawmakers and the Administration to ensure that philanthropy’s voice resonates.
Since 2009, President Obama has proposed a 28 percent cap on itemized deductions, including the charitable deduction. Both the Council and nonprofit sector have repeatedly expressed disappointment with this approach because the charitable deduction is a proven way to strengthen communities. The Council remains steadfast in our position on the charitable deduction— it encourages philanthropic giving and benefits people in need by creating a powerful incentive for donors. Capping it would have a cascading impact on nonprofits and philanthropic organizations across the country. If donors have less incentive to give, donations will decline by billions of dollars—cutting a lifeline for millions of Americans.
The Council also notes with interest the new proposed penalties associated with failure to file returns electronically. We will continue to assess how this will impact the foundation community.
As our country continues to recover from the worst recession in generations, policymakers should advance proposals that would increase charitable giving—not degrade it.
The Council looks forward to working with the Administration and Members of Congress to develop policies that allow philanthropy to continue building a strong, resilient economy and thriving communities.
As we told you in a breaking news alert last week, House Ways and Means Chairman Dave Camp (R-MI-4) released his long-awaited comprehensive tax reform bill. The proposal would overhaul both the corporate and individual tax codes, and includes dozens of provisions that affect tax-exempt organizations. Chairman Camp’s stated objectives are to (1) make the tax code more simple and fair, and (2) stimulate the economy and create more jobs.
Those of us who carefully follow tax policy have been waiting for the Chairman to release this bill so we’d have a critical starting point for comprehensive tax reform conversations. This bill is important because it sets out proposals that will serve as the framework either for a bill that Chairman Camp will advance or for future tax writers. Some commentators strongly believe that it will not advance in this Congress. Yet, it is imperative for the philanthropic community to be actively engaged in tax policy conversations to demonstrate support for provisions in the bill, to express opposition, and to craft and negotiate changes to those provisions we oppose so that we have the best possible language in this framework. In the words of Gene Steuerle of the Urban Institute, “[t]he prospect for any reform is nil if no leaders do what Camp did and step up to the plate. The process is not one of instant epiphany. Rather it slowly builds support.”
Council President and CEO Vikki Spruill released a statement in response to the Chairman’s proposal commented to The Chronicle of Philanthropy. Specific to charitable giving incentives, she cites the Council’s concerns with the proposed floor on the charitable deduction. “Everything is on the table,” Spruill told these media outlets. “This is an 'if it ain’t broke, don’t fix it’ situation.” She expressed these same concerns to The Nonprofit Times: “Capping [the deduction] would have a cascading impact on nonprofits and philanthropic organizations. If donors have less incentive to give, donations will decline by billions of dollars,” Spruill emphasized.
The Council Voices Strong Concerns
Philanthropy Week in Washington provided an ideal forum to discuss reactions to Chairman Camp’s bill and hear from Council members around provisions in the bill that philanthropy leaders care about most.
The Council continues to delve into hundreds of pages of bill text and identify the numerous provisions that would have an impact on our members and the broader charitable sector. It’s also critically important for us to assess the connections between and among the provisions, and how changes in one area of the code might influence others.
The Council is deeply concerned about the proposal to impose a 5-year payout on donor advised funds (DAFs). We’re concerned not only about the proposed provision but also the underlying motivation for including such stringent restraints. We believe that DAFs are unique charitable vehicles that allow individuals to channel their philanthropic giving to projects and programs that benefit the communities in which they live. We support current law, which permits community foundations to hold and manage DAFs that can benefit the community for years to come. Along with our members and our colleagues in the field, we will educate lawmakers about DAFs and underscore their value as giving tools, build confidence on the integrity of these funds and identify how we can eliminate or reshape this provision to assure continued for this giving vehicle. We know our community foundation members are deeply concerned with this proposal. Please feel free to reach out to us directly if you would like to express your opinion or concerns.
As our readers know, the Council also remains steadfast in opposing the proposed limitations on the charitable deduction, along with any proposed policy changes that reduce the value of charitable giving incentives. We are concerned that the proposed floor, combined with a higher standard deduction that could reduce the number of taxpayers who choose to itemize and a phase-out of itemized deductions, could cause a decline in charitable giving—particularly for those donors who make smaller gifts.
The proposal to repeal Type II and Type III supporting organizations is also deeply troubling. Again, we must address the motivation for this proposal as well as the language itself. This provision has the potential to reduce the flexibility of community foundations in particular to establish separate but related entities.
On a more positive note, Chairman Camp’s bill proposes to simplify the current two-tiered private foundation excise tax to a flat rate of one percent. The Council resolutely supports this simplification. Many of our members will recognize a lower tax burden as a result, and face fewer headaches and compliance costs associated with tracking complicated investment activity. The bill also allows for the deduction of charitable contributions through April 15th of the calendar year, which will allow individual donors more flexibility in planning their charitable contributions throughout the year.
Please note that these are just a few of the many provisions in the bill that the Council will assess and address. We’ll be sharing more information and seeking input over the coming weeks and months as this proposal evolves.
Please check out last week’s Washington Snapshot for an additional breakdown of some provisions in the bill that could impact foundations.
For more information on any of provisions in Chairman Camp’s tax reform bill, contact the Council’s Policy Analyst Katherine LaBeau.
The House Oversight and Government Reform hearing with former IRS commissioner Lois Lerner took a heated turn earlier this week with a barbed exchange between Committee Chairman Darrell Issa, (R-CA-49), and Ranking Member Elijah Cummings, D-MD-7). On Wednesday, the Chairman convened a hearing that continued the investigation, now more than 9 months along, into whether the IRS targeted conservative groups when reviewing their 501(c)(4) applications. Lerner pled the Fifth, asserting her Constitutional right not to testify. Chairman Issa saw no point in proceeding further, lowered his gavel and closed the hearing. The move infuriated Cummings, who demanded a chance to speak as his the Chairman attempted to ignore him.
"Mr. Chairman you cannot run a committee like this. You just cannot do this. We're better than that as a country," Representative Cummings said, his voice rising as Issa stood up to leave and the members' microphones were cut off. "There is absolutely something wrong with that and that is absolutely un-American!"
Roll Call reported yesterday that Chairman Issa has apologized to Representative Cummings for cutting off his microphone at the hearing—although in a separate interview, Issa noted that he thought Representative Cummings had a “hissy fit” and “broke the decorum of the House.”
As communities across the United States are exploring social impact bonds—also known as SIBs, a type of Pay for Success contract—the Council is working with its members and partners in the field to equip foundations with the connections and resources. In collaboration with the Center for American Progress (CAP), the Council co-hosted convening with foundations, community development financial institutions, and investment firms to discuss how different types of financial institutions might co-invest in a SIB. Out of these conversations, two issue briefs have been developed and are now available. The first, “Networking for Success,” co-authored by the Council’s Laura Tomasko and CAP’s Kristina Costa, explores the importance of networks in SIB investment. The second, “Investing for Success,” authored by Costa, looks at some of the policy questions raised by the investors. If you would like to know more about these issues or the publications, please reach out to Laura Tomasko.
Keep in Touch!
Please feel free to reach out to any of us on the public policy team with any comments or concerns, or to share an issue, article, event, or op-ed you’d like to see covered in a future Washington Snapshot.