In This Week's Edition of Snapshot
- Tax Reform Update: Tax reform faces competing legislative priorities
- Move to weaken the Johnson Amendment advances in the House, NASCO speaks out
- Kautter confirmed for key Treasury position
- IRS takes steps to encourage charitable giving in the wake of Hurricane Harvey
- In the States: Government-Nonprofit grants reform update; TABOR turns 25
In the coming months, we will provide weekly updates with new developments in the tax reform process.
Congress came back into session this week after their traditional August recess, immediately facing a full legislative agenda. The list included a potential repeal of Obamacare, raising the debt ceiling, funding the government for fiscal year (FY) 2018 as FY 2017 funding ends on Sept. 30, passing a budget for FY 2018 that will include reconciliation instructions for tax reform, funding the Children’s Health Insurance Program (CHIP) before funding runs out on Sept. 30, and finding a legislative fix for the estimated 800,000 young adults and children facing deportation after President Trump ended the Obama administration program known as DACA (Deferred Action for Childhood Arrivals). This was all on Congress’ plate before the devastation caused by Hurricane Harvey and the impending arrival of Hurricane Irma, giving them another item to pass in the form of emergency aid relief for those affected.
On Sept. 1, the Senate parliamentarian ruled that Congress would only have until the end of the month to pass a repeal of Obamacare under reconciliation—a procedure set up by the FY 2016 budget resolution that allows them to pass legislation with a majority vote and therefore without Democratic support. Republican leadership in both chambers have been trying to repeal and replace former President Obama’s signature health care law for several years and were narrowly unable to get enough votes earlier this summer in the Senate to do so. As congressional Republicans mull how to potentially proceed, they must also grapple with the fact that CHIP funding is set to expire on Sept. 30. According to The Hill, “If Congress fails to act by this date, funds that flow from the federal government to the states will eventually dry up, as soon as early 2018, leaving millions of children without health coverage. While not as well-known as Medicare or Medicaid, CHIP has been vital for providing health coverage for children in families that make too much to qualify for Medicaid, but not enough to afford health insurance. It is every bit as important as the other two programs in forming a safety net that protects people and families.”
In a reversal of many of the legislative battles up to this point in the 115th Congress, Democratic leaders in the House and Senate were able to quickly strike a deal with President Trump on a short-term extension of the debt limit (the amount of money the federal government is allowed to borrow in order to fulfill its financial obligations) coupled with funding for the federal government. Both pieces are for three months and Congress is expected to pass it within the next several days. The Washington Post noted President Trump’s reaction to the deal: “‘We had a very good meeting with [Rep.] Nancy Pelosi [D-CA] and [Sen.] Chuck Schumer [D-NY],’ Trump told reporters Wednesday on Air Force One while traveling to North Dakota. ‘We agreed to a three-month extension on debt ceiling, which they consider to be sacred—very important—always we’ll agree on debt ceiling automatically because of the importance of it.’” The President and Hill leaders also agreed to attach an initial portion of disaster aid relief for Hurricane Harvey to the legislative package.
One item vital to comprehensive tax reform is the passage of an FY 2018 budget resolution, which The Hill is reporting may be considered on the House floor as early as next week. Congressional Republicans are planning on including reconciliation instructions for tax reform in the resolution, which would allow a tax reform bill to pass the Senate with only Republican votes. According to the article, “The House is hoping to pass its budget resolution for 2018 next week, pending a Wednesday [Sept. 6] whip count. ‘I anticipate if we have good results from that that we'll put it on the floor next week,’ House Budget Committee [Chairman] Diane Black (R-TN) told The Hill.” There is some urgency to pass a budget resolution, not only to continue moving the tax reform process along, but also because Rep. Black is running for governor in Tennessee. This could cause potential issues with her chairmanship due to Republican conference rules prohibiting some members who choose to run for another office from maintaining their leadership role. However, according to POLITICO Pro, Rep. Black is likely to be exempt or secure a waiver, allowing her to finish the budget process.
Congress must also address the DACA program that the Trump Administration formally ended on Tuesday. The program put legal protection in place for about 800,000 people—often referred to as “DREAMers”—who entered the country without documentation, as children. In an article, NPR noted, “President Trump issued a statement, saying, ‘I do not favor punishing children, most of whom are now adults, for the actions of their parents. But we must also recognize that we are nation of opportunity because we are a nation of laws.’ He also said he looks forward to working with Republicans and Democrats in Congress to address immigration issues ‘in a manner that puts the hardworking citizens of our country first.’” Congress will have six months to pass legislation that will allow the DREAMers to stay in the country and create a path to citizenship for them. After the decision, members of both parties issues support for DREAMers and hope for a swift legislative solution. Sens. Lindsey Graham (R-SC), Dick Durbin (D-IL), Jeff Flake (R-AZ), and Chuck Schumer (D-NY) reintroduced the DREAM Act earlier this summer, which would continue the legal protections for DREAMers, as well as provide a path to citizenship.
With such a packed legislative agenda for this fall, there is increasing skepticism that tax reform will proceed according to plan—which, according to Treasury Secretary Steven Mnuchin, would have tax reform legislation passed into law before the year’s end. Secretary Mnuchin is one of six major players (the "Big Six") in tax reform discussions between the Trump Administration and Congress. The group met this Tuesday with President Trump to begin ironing out some details of their approach to tax legislation.
As it relates to charitable giving, a number of key lawmakers have spoken up on the importance of preserving charitable giving incentives. During a speech made from the Reagan Ranch over the August congressional recess, Ways and Means Chairman Kevin Brady (R-TX) noted that his committee is “working with charitable organizations to explore ways to unlock more charitable giving.” Senator John Thune (R-SD) has also spoken out on the impact of tax reform on charities, stating—on the topic of doubling the standard deduction—in an exchange with The Wall Street Journal’s Richard Rubin: “I can see why it would have a lot of appeal, but I think from the charitable community, what that’s likely to do is to create fewer itemizers and if you’re not itemizing, there’s a lot less incentive.”
Earlier this summer, the House Appropriations Committee voted to pass a bill containing a provision that would weaken the prohibition on political activity by nonprofits (known as the “Johnson Amendment”). Having passed out of committee, the bill (H.R. 3280) was folded into an 8-bill appropriations measure (H.R. 3354) and will now move to the House floor for a vote by the full chamber. However, before this happens, the House Rules Committee had to decide which of the 900+ amendments that have been offered will be allowed a vote.
Three of these amendments—#7, Rep. John Lewis (D-GA); #14, Rep. Beto O’Rourke (D-TX); and #96, Rep. Wasserman Schultz (D-FL)—would strike the language to weaken the Johnson Amendment from the bill. Another amendment—#112, Rep. Gary Palmer (R-AL)—would seek to weaken the Johnson Amendment beyond what the language in this bill already does by blocking any funds from being used to enforce the prohibition on political intervention by 501(c)(3) organizations.
The Rules Committee met this week, but did not approve any of these amendments to move forward for a vote on the House floor—meaning, the bill will go up for a vote with the language to weaken the Johnson Amendment remaining.
In addition to the more than 5,500 signers of the Community Letter in Support of Nonpartisanship (including the Council), the National Association of State Charities Officers (NASCO) joined the effort to oppose weakening or repealing the Johnson Amendment when they sent a letter to congressional leaders on Aug. 23. The nonpartisan organization represents state charity regulators across the country, including those in state Attorney General offices, Secretary of State offices, and other state offices charged with preventing the misuse of charitable assets. In its letter, NASCO explained the challenge from a law-enforcement perspective: “electioneering is not considered a charitable purpose under common law, and many state charities regulators would consider expenditure of charitable funds on such purposes to be inappropriate, possibly illegal.”
Additionally, NASCO Board President Karen Gano, in conjunction with National Council of Nonprofits President & CEO Tim Delaney, authored an op-ed in The Hill detailing the adverse impact on state charities officials, foundations, and nonprofits if Congress were to repeal or weaken the Johnson Amendment.
On Aug. 3, David Kautter was confirmed by the full Senate to the position of Assistant Secretary for Tax Policy at the U.S. Department of the Treasury. He will be working under Treasury Secretary Steven Mnuchin and will be working with other members of the administration and with Congress on tax reform, bringing more policy expertise to the discussions.
This week the IRS announced special measures intended to encourage Americans to increase charitable giving in the wake of the devastation left by Hurricane Harvey in coastal Texas and Louisiana. These measures include the ability of employees to forgo their vacation, sick, or personal leave in exchange for their employer making cash donations (before January 1, 2019) to provide relief for victims of the disaster. Employers are also permitted to deduct the cash payments as business expenses. More information is available on the IRS website.
The Council’s Senior Counsel for Compliance & Policy and Executive Director of National Standards Lara Kalwinski recently authored a blog with additional information about grantmaking for disaster relief efforts.
Exclusive from our colleagues at the National Council of Nonprofits.
Government-Nonprofit Grants Reform Update
For a number of years, nonprofits have worked to improve the grantmaking and contracting relationship with state governments in order to reduce regulatory burdens and improve service delivery. The promulgation of the OMB Uniform Guidance was intended to advance this agenda and ensure that charitable nonprofits are reimbursed for their indirect costs when performing services on behalf of governments. The implementation of the Uniform Guidance at the state level, i.e. securing state compliance with the federal regulations, remains a challenge and a survey currently in the field seeks to identify the success and challenges that local nonprofits and state/local governments have experienced.
Legislatures across the country are taking closer looks at the way governments fulfill their obligations to their constituents, and the relationship with nonprofits is getting a closer look. For example, last month advocacy achieved the following results:
- California Contracting Hurdles: A troubling anti-contracting bill has been slowed but could come up for a vote in the next two weeks. Legislation in the California Assembly and Senate would require counties to impose additional paperwork and other review burdens when opting to outsource public services, including when contracting with nonprofits. A Nonprofit Letter opposing the legislation, signed by more than 300 organizations, demonstrates the concerns of the nonprofit community as well as the collective impact of nonprofit advocacy.
- Illinois Notice Requirement: Illinois recently enacted the Social Services Contract Notice Act for non-governmental service providers that deliver social services on behalf of the State through grants, contracts, or agreements with state agencies. The law requires a written 30-day notice before the government can terminate a contract that is not canceled for cause. This means that the typical practice of simply ending contracts effective immediately with no notice due to funding cuts is no longer an acceptable practice in Illinois.
- North Carolina Red Tape Review: A bill signed by the Governor authorizes the Joint Legislative Program Evaluation Division to study the red tape that nonprofits experience when providing public services through government grants and contracts. The study is supposed to recommend solutions to address these challenges as well as the chronic underpayment of nonprofits’ indirect costs by state agencies. The legislation has been a high priority for the North Carolina Center for Nonprofits.
TABOR Turns 25
The Taxpayer’s Bill of Rights, commonly referred to as TABOR, has been a part of the Colorado state constitution for 25 years. To supporters, the provision is a check on government spending and supposedly requires lawmakers to receive permission from voters before raising taxes or issuing debt. To opponents, TABOR limits lawmakers’ options in dealing with emerging challenges while also leading lawmakers to use creative financing schemes to avoid going to voters to generate revenue, such as imposing fees on nonprofits, foundations, and others. According to the Pew Charitable Trusts, Colorado ranks third among the states for imposing “service charges” that cover everything from parks to textbooks to hospitals. Colorado is currently the only state to have enacted the public policy, but North Carolina and Arizona have considered adopting the revenue restriction in recent years.