In This Week's Edition of Snapshot…
- CHARITY Act is reintroduced in Senate
- Tax Reform Update: Freedom Caucus weighs in on tax reform
- Senate continues work on health care legislation
- Deadline for addressing debt limit more fluid than previously thought
- In the States: Budgets and late nights at the legislature, Massachusetts considers linking nonprofit salaries and property tax exemptions, States seeking Medicaid waivers
- Giving USA 2017 report is released
On Tuesday, Senators John Thune (R-SD) and Bob Casey (D-PA), with Pat Roberts (R-KS) and Ron Wyden (D-OR), introduced the Charities Helping Americans Regularly Throughout the Year (CHARITY) Act (S. 1343).
The CHARITY Act sends a strong message that encouraging charitable giving should be a goal of comprehensive tax reform. Among other things, the bill says “Congress should ensure that the value and scope of the deduction for charitable contributions is not diminished during a comprehensive reform of the tax code.” Additionally, the bill would expand the IRA charitable rollover to allow for distributions to donor advised funds (DAFs) as well as simplifying the private foundation excise tax from the current two-tiered structure to a flat rate of one percent.
Our Government Relations team worked closely with senators from both side of the aisle to make sure this bill got introduced in this Congress. Now we need you to add your voice. Please reach out to your senators and ask them to cosponsor the CHARITY Act.
*Note: The Council’s legal team has determined that private foundations may engage in lobbying on this issue, as it qualifies under the “self-defense” exception. However, the Council respects its members’ own determinations regarding legal issues — and individual policies or practices related to lobbying activity. We encourage members to consult with their own legal counsel regarding any questions. Read more about this on our website.
In the coming months, we will provide weekly updates with new developments in the tax reform process.
With approximately five weeks left in session until the August Recess, Congress continues work to iron out its differences on a number of legislative priorities — including tax reform.
The House Freedom Caucus weighed in on the tax reform discussion, laying out its own set of ideas for how Congress should tackle overhauling the tax code. At an event hosted by the Heritage Foundation last Friday, Caucus Chairman Mark Meadows (R-NC) shared that the group was considering several items, including lowering the corporate and small business tax rate to 20 percent and doubling the standard income deduction for individuals. Chairman Meadows also shared that a border adjustability tax (BAT) would not be part of their forthcoming plan — but suggested that tying welfare reform to the tax reform process could replace that revenue-generating provision. Members of the Freedom Caucus remain divided on whether they should require welfare reform as a condition for supporting comprehensive tax reform.
Chairman Kevin Brady (R-TX) of the House Ways and Means Committee remains committed to the BAT provision being included in any proposed tax legislation. Earlier this week Chairman Brady proposed, in hopes of swaying skeptics of the idea, that border adjustment be phased-in over a period a five years. However, it does not appear that the Chairman’s proposal has helped convert any of the opposition.
In the Senate, Finance Committee Chairman Orrin Hatch (R-UT) made remarks last week during the Bloomberg Global Transfer Pricing Conference about his committee’s continued work on finding common ground on tax reform.
Repealing and replacing Obamacare continues to be the current issue taking up legislators’ time on Capitol Hill. While the House passed their version of the health care bill in May, the Senate is in the process of drafting their own proposal (see here for some quick refreshers on how legislation is passed in the House, how legislation is passed in the Senate, and how the House and Senate settle differences between legislation). Senate Republicans have not yet released details of their plan — but have discussed changing aspects of the House plans such as Medicaid cuts.
Adding a layer of complexity to the process, The Hill (among other news outlets) recently reported that President Donald Trump “called the House's Obamacare repeal bill ‘mean’ and said it should be more generous during a meeting with Republican senators Tuesday, according to a Senate GOP aide.” Senate Majority Leader Mitch McConnell (R-KY) has aimed to put the healthcare legislation up for a vote before the July 4 recess, but it is unclear if the legislation will be ready by then.
One of the agenda items facing Congress this year is raising the debt limit. This is the total amount of money that the U.S. government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. Failing to raise the debt limit would have catastrophic economic impacts on the United States and would be unprecedented.
However, Congress is unsure of when exactly the debt limit will be reached, which complicates the legislative agenda. According to The Wall Street Journal, “U.S. lawmakers face a big unknown six weeks before they leave Washington for summer recess: The government could run out of cash before they get back or soon after their return, but the Trump administration isn’t saying when. … The Treasury [Department] has been unable to raise additional cash from securities sales since the government hit the $20 trillion debt ceiling in mid-March. Since then, Treasury has been using extraordinary measures, such as redeeming certain investments in federal pensions programs and suspending new investments in those programs, to raise cash. At some point in the coming months, the Treasury will exhaust those measures and run too low on cash to make all of its payments in full and on time unless the debt limit is raised and it can once again sell bonds.”
While Treasury Secretary Steve Mnuchin has been suggesting since last month that Congress should raise the debt limit before they leave for the planned August recess, he recently noted that the U.S. will be fine if it is not raised until after the recess (Congress is scheduled to return from the August break on Sept. 5). With a healthcare bill still being negotiated in the Senate, tax reform on the horizon, and lawmakers working to complete the fiscal year (FY) 2018 budget and appropriations process, the timing of raising the debt limit will likely further complicate an already busy fall schedule.
Exclusive from our colleagues at the National Council of Nonprofits.
Budgets and Late Nights at the Legislature
Budget action is coming to a head in several states as the usual July 1 beginning date of new fiscal years rapidly approaches.
The Connecticut Legislature has convened to find agreement on the state budget, budget implementers, bonding package, and school construction after it failed to pass a budget by the constitutionally mandated deadline. The CT Community Alliance expressed concerns that the “most vulnerable citizens will be the first to be hurt” if a budget isn’t reached.
The Illinois Legislature theoretically adjourned last week, having once again failed to enact a budget for the coming fiscal year. Likewise, Alaska is no closer to a budget with only a week left to close a $2.5 billion budget deficit before the end of a special session of the Legislature.
Also last week, Oklahoma’s Governor signed a $6.8 billion spending bill that cuts the budgets of most state agencies by about five percent and raises revenues with a cigarette tax and a car tax. The bill did not include a cap on itemized deductions that was initially proposed. Minnesota’s Governor vetoed a portion of the state's budget that would have reduced general fund spending on health and human services. A conference committee of key members of the North Carolina Senate and House is also meeting to hammer out a final version of the state budget for FY2017-18 (see updated comparison from the North Carolina Center for Nonprofits). Finally, this past week the Kansas Legislature overrode the Governor’s veto and rolled back the 2012 tax cuts that had led to persistent budget deficits in the state. The ratings agency Moody's Investors Service immediately applauded the Legislature's move, calling it "a significant step" toward achieving a sustainable budget.
Massachusetts Considers Linking Nonprofit Salaries and Property Tax Exemptions
Legislation in Massachusetts would give local governments the power to tax the property of charitable nonprofits and perhaps foundations that pay their executives too much in the eyes of some legislators. Specifically, the bill in the House would create a new “large public charity” category under the law and allow towns to charge educational, medical, and other nonprofit organizations that pay their five highest-earning employees more than a cumulative $2.5 million half of the property tax liability for three years and then 25 percent in perpetuity. Those organizations would also be subject to property taxation when they purchase new property, on a sliding scale that settles at 25 percent of the total tax liability. In addition, the measure also would create a database of all nonprofit employees’ salaries – more than 38,000 nonprofits that employ more than 500,000 workers – requiring nonprofits of any size to report every employee’s salary to the Attorney General every year.
The legislation is strongly opposed by several significant nonprofit membership associations, including Providers’ Council and the Massachusetts Nonprofit Network (MNN). At a legislative hearing this week, Michael Weekes of Providers’ stated emphatically that “nonprofits should not be forced to make payments [in lieu of taxes] as many, particularly in human services, are working for the public benefit.” He concluded that the pending legislation would “shatter the social compact that government and nonprofits have worked so long to build.” Jim Klocke of MNN laid out five reasons that nonprofits oppose bills to tax tax-exempt organizations, including expressing concern that the legislation violates donor intent and imposes financial burdens on a sector that is experiencing severely constrained resources.
States Seeking Medicaid Waivers
As federal priorities change, state lawmakers are adapting either through action or inaction. President Trump’s first Executive Order directed federal officials to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [Affordable Care] Act that would impose a fiscal burden on any State” and “provide greater flexibility to States … in implementing healthcare programs.” That has led some governors to take steps that were less likely to prevail in the Obama Administration. Some states are now asking federal officials for more flexibility for state-run health care programs, including requesting Medicaid waivers with a higher expectation of receiving them. Arizona and Kentucky have submitted waiver requests that include work requirements, and Arkansas and Maine want to restrict those who qualify for Medicaid. Governor Scott of Florida submitted a waiver to block-grant Medicaid, as the House-passed American Health Care Act would do, while Governor Walker of Wisconsin is considering drug testing Medicaid recipients.
This week, Giving USA released its annual report on charitable giving for 2016. The report finds that charitable giving reached a record high with a total of $390.1 billion being donated to charity—a 1.4 percent increase from 2015. Foundations made up 15 percent of total giving at $59.28 billion.
For more information on this report, visit the Giving USA website.