In This Week's Edition of Snapshot…
- Council submits tax reform comments to Senate Finance Committee
- Tax Reform Update: House committee approves budget, takes first legislative step towards tax reform
- Senate Finance Committee to consider Mr. Kautter’s nomination today
- In the States: Michigan court clarifies property tax exemption; California nonprofits object to burdensome contracting legislation
In response to a call for input on tax reform from Chairman of the Senate Finance Committee Orrin Hatch (R-UT), the Council submitted comments on behalf of our members detailing our position on a number of tax policy issues that will impact philanthropy and charitable giving. Highlights from these comments include:
- An explanation of the importance of maintaining the full scope and value of the charitable deduction;
- Details for a proposal to extend the charitable deduction to all taxpayers, regardless of whether they itemize or tax the standard deduction; and
- A position of support for including the provisions in the CHARITY Act in any legislation put forward to overhaul the tax code.
Chairman Hatch and the Finance Committee are expected to use these submissions as guidance when they begin writing the tax code overhaul.
In the coming months, we will provide weekly updates with new developments in the tax reform process.
On Tuesday, House Republicans unveiled their long-awaited fiscal year (FY) 2018 budget resolution. According to Politico, “[the resolution had] been stalled for months as [Chairwoman Diane] Black (R-TN) struggled to win over dozens of holdouts from the divided House Republican caucus, which also failed to pass a budget resolution on the floor last year.” The budget resolution is largely a political document, but importantly gives appropriators the funding levels they will be working with to craft the 12 spending bills which fund the government.
Additionally, the budget resolution can contain reconciliation instructions—a powerful tool that allows the Senate to bring up tax and spending legislation with only 51 votes in the Senate. Chairwoman Black’s FY 2018 document includes reconciliation instructions to allow Congressional Republicans to pass tax reform without the help of any Democratic votes. The instructions give the Republican leadership in Congress broad discretion on how to overhaul the tax code.
After a 12-hour Budget Committee markup on Wednesday, the FY 2018 budget resolution was adopted by a party line vote of 22-14, taking the first legislative step towards comprehensive tax reform. The resolution will next be considered before the full House on the House floor; however, it is unclear if there is enough support among Republicans to bring up the measure before the House leaves for their traditional August recess (scheduled to begin July 29).
In health care news, the Senate hit a snag this week when it became evident that Majority Leader Mitch McConnell (R-KY) did not have the votes to pass the new version of the health care bill to “repeal and replace” Obamacare. The news came shortly after Sens. Mike Lee (R-UT) and Jerry Moran (R-KS) announced that they would not support the bill.
With no clear path forward on “repeal and replace,” Majority Leader McConnell moved to a backup plan: repeal Obamacare now and figure out the “replacement” down the road. This approach alienated a new handful of Senate Republicans who were not comfortable voting to eliminate Obamacare without certainty that their constituents would not lose coverage in the absence of a replacement plan. Without support from these individuals—including Sens. Susan Collins (R-ME), Shelly Capito (R-WV), and Lisa Murkowski (R-AK)—Mr. McConnell was once again without the votes to pass the procedural motion necessary to consider a clean “repeal” bill.
GOP leaders in the Senate met yesterday evening with a group of senators who opposed earlier versions of the health care legislation in an attempt to secure enough support to move one of the two options forward. Republican senators who were in the meeting shared afterward that the discussion was good, but that it did not bring them any closer to having consensus support for the bill.
And Tax Reform...
With health care shaping up to be a more challenging endeavor than some anticipated, tax reform begins to shift closer toward the spotlight. The GOP is increasingly eager to deliver a "win" to their constituents and see tax reform as the opportunity to achieve that—though, it is still unclear whether there is agreement on how to tackle that issue.
In addition to the two tax reform hearings held last week by the Ways and Means and Senate Finance committee, Ways and Means continued work on tax reform this week by holding a hearing yesterday on How Tax Reform Will Simplify Our Broken Tax Code and Help Individuals and Families. Witnesses for the hearing included former Ways and Means Chairman, Bill Archer, as well as others who spoke on behalf of retirement plans, electronic revenue communication, and research and advocacy.
Notably, late last week (following a handful of meetings with Council representatives and other leaders in the sector) Ways and Means Chairman Kevin Brady (R-TX) told reporters that “GOP writers were giving ‘very serious thought’ to the idea of allowing a charitable deduction even to taxpayers who don’t itemize. ‘At all income levels, we want to encourage Americans who are incredibly generous already to give more, to give earlier in life.’” The idea he is referring to is the universal deduction—which the Council, as well as Independent Sector, Alliance for Charitable Reform, and others, have been strongly advocating for with lawmakers and congressional staff.
This Tuesday, the Senate Finance Committee held a confirmation hearing for David Kautter, President Trump’s nominee for Assistant Secretary for Tax Policy at the Department of Treasury.
In Mr. Kautter’s opening statement, he said “Comprehensive tax reform is the challenge before us. The current code is unnecessarily complex, anti-competitive and picks winners and losers. Americans need a simpler system when filing their taxes and the middle class needs a tax cut. U.S. businesses need a tax code that allows them to prosper, domestically and in the international marketplace.”
Committee Ranking Member Ron Wyden (D-OR) questioned Kautter about his time at Ernst and Young (E&Y) when the company was investigated over tax shelters. Sen Wyden shared that he has “real concerns about work Mr. Kautter did during his time as director of national tax at Ernst and Young. The firm did big business setting up tax shelters for wealthy clients, and employees were convicted of fraud and obstruction for covering it up. E&Y also paid more than one hundred million dollars in settlements with the Justice Department and IRS over its tax shelter marketing.”
“Senator, I was not involved in the decision to get involved in designing tax shelters, and I’ve never designed or drafted one myself,” Mr. Kautter responded, but admitted, “Every time I think about Ernst & Young’s activity in the tax shelter area, I wish I had done things differently.”
Committee Chairman Orrin Hatch (R-UT) expressed his hope that the process to confirm Mr. Kautter will move quickly, and has scheduled an executive session of the Committee for this morning to consider Mr. Kautter’s nomination.
If confirmed, Mr. Kautter will play a critical role in tax policy and tax reform.
Exclusive from our colleagues at the National Council of Nonprofits.
Michigan Court Clarifies Property Tax Exemption
Foundations and nonprofits owning and using property in Michigan for their charitable missions won a tremendous victory last month when the state Supreme Court overruled tax assessors and the lower courts by clarifying the rules for when organizations are entitled to tax exemptions under state law. At issue was the denial of a property tax exemption sought by Baruch Senior Ministries for an adult foster care facility. The tax assessor reviewed the six-part test under state law and claimed that the facility discriminated in its charity care by only providing income-based subsidizes to longer-term residents. The Michigan Supreme Court rejected the ad hoc determination of the assessor and ruled that the criteria of offering charity is satisfied so long as restrictions or conditions that the nonprofit imposes bear a reasonable relationship to the charitable purpose of the organization.
The Michigan Nonprofit Association and its members have been fighting the tax assessors in both the legislature and the courts. Last session the state association of nonprofits promoted legislation to fight the increasing occurrences of local tax assessors challenging nonprofits and their property tax exemption. The nonprofits, located across the state and representing a wide variety of charitable organizations, are being challenged on whether they should be considered charitable. The legislation would have brought clarity and consistency to the process, which is based on a previous Supreme Court case setting forth the six factors to determine charitability and thus exemption. The recent Supreme Court case provides needed clarity on one of those six factors.
California Nonprofits Object to Burdensome Contracting Legislation
Legislation in California would impose on counties additional bureaucratic processing standards burdens when seeking to outsource public services, including when contracting with nonprofits. Among other things, the bill would require a county, before contracting with nonprofits and others, to clearly demonstrate that the proposed contract would result in actual overall costs savings to the county and also show that the contract would not cause the displacement of county workers.
CalNonprofits, the state association of nonprofits, issued a letter in opposition to the bill stating: “AB 1250’s provisions are far too onerous for our members, as they will drive up unfunded overhead and compliance costs. And that’s the best-case scenario. The worst is that contracts will come to a halt altogether, a prospect the counties are saying unequivocally will occur, or be so delayed that they cause serious adversity to the low-income and marginalized Californians our members serve.”
CalNonprofits CEO Jan Masaoka has said, “There are some things best done by government and some best done by nonprofits. We need government-led, nonprofit-delivered services that are streamlined, efficient, culturally accessible, and cost-effective. We do not need a lot of expensive red tape at the beginning and end of every contract.” The bill was recently approved by one committee, and is expected to be considered anew after the Assembly’s summer recess that starts at the end of this week.