In This Week's Edition of Snapshot
- Tax Reform Update: Budget Consideration Maintains Tax Reform Momentum
- HHS Secretary Price Resigns
- IRS Changes 1023-EZ Form
- In the States: Oregon Supreme Court Upholds Portland Arts Tax
In the coming months, we will provide weekly updates with new developments in the tax reform process.
This week, both the House and the Senate are focusing on their respective budget resolutions–an important step toward being able to address tax reform. In the House, debate on the floor began yesterday and the resolution is expected to pass later today. The Senate is slightly behind the House process and is considering their resolution in the Budget Committee this week.
According to BGov, “House Republicans are confident they'll adopt their budget resolution on Oct. 5, but a final budget deal will depend heavily on the Senate's decision about how to offset the revenue lost in tax-code changes. ‘We're going to pass it,’ House Budget Committee Chairman Diane Black (R-TN) told reporters Oct. 3 after a House Republican Conference meeting. … Republicans’ motivation to adopt the budget is almost entirely based on the opportunity to push tax-overhaul legislation through budget reconciliation, which allows the Senate to avoid a Democratic filibuster. …the Senate Budget Committee's markup on Oct. 4 and Oct. 5 will serve as a debate over the details. It's hard to tell how much a final concurrent resolution will look like the House budget, which projects to balance within a decade and includes $203 billion in mandatory spending cuts, Cole told reporters. Some senators have called for a ‘shell budget’ that serves only as a vehicle to enact tax cuts.”
While the budget resolution will lay the groundwork for tax reform, Congressional Republican leaders are still grappling with many of the details and differences within their caucus after the “Big Six” released their framework last week. One major issue that needs to be reconciled is the state and local tax (SALT) deduction, which initially looked likely to be repealed. According to The New York Times, “Republican leaders are backing away from a proposal to fully repeal an expensive tax break used by more than 40 million tax filers to deduct state and local taxes amid pushback from fellow lawmakers whose residents rely on the popular provision.”
The Times goes on to note that the SALT provision will cost around $1.3 trillion over 10 years, and would help pay for the tax cuts laid out in the Big Six framework. Somewhat surprisingly, Senate Finance Committee Chairman Orrin Hatch (R-UT)—who is one of the Big Six—said last week he would like to maintain the SALT deduction if possible.
Further complicating tax reform efforts is an early analysis that came out about the framework. While the analysis had to make many assumptions about the Republican plan, due to the lack of details included in the framework, the report contradicted claims by the White House that the tax plan would mostly benefit the middle class.
According to POLITICO, “The top 1 percent would be the biggest winners under Republicans' plans to rewrite the tax code, according to a new analysis, while some moderate-income people would face tax increases. Though the administration says the wealthy would not see their taxes go down under the proposal, the Tax Policy Center said Friday that they would actually reap the biggest cuts—about half of all the tax benefits in the GOP plan. In 2018, the wealthiest 1 percent would take home a $129,000 tax cut, the group found, boosting their after-tax incomes by 8.5 percent.”
Republicans strongly pushed back against the Tax Policy Center report, citing the assumptions needed to come to their conclusions. The Washington Post noted, “A spokeswoman for one of the architects of the GOP plan dismissed the report. ‘This analysis is based on guesswork and biased assumptions designed to promote the authors’ point of view rather actual detail from a bill that has not yet been written by the committees,’ said Antonia Ferrier, spokeswoman for Senate Majority Leader Mitch McConnell (R-KY).”
More details are expected to be released in the coming weeks as Congress looks to introduce and debate a comprehensive bill. Importantly for the charitable sector, Republican leaders continue to state that they want to incentivize charitable giving. In an appearance on CBS’ “Face the Nation” on Sunday, Speaker Paul Ryan (R-WI) said that Republicans wanted to “maintain critical things like incentives for home buying…charitable giving, [and] education…”
On Sept. 29, a bill to deliver hurricane relief to those Americans affected by the recent hurricanes was signed into law by President Donald Trump. According to a press release by House Ways and Means Committee Chairman Kevin Brady (R-TX), “H.R. 3823 helps communities that have been severely affected by hurricanes in recent months through:
- Creating a deduction for personal casualty losses with respect to uncompensated losses arising in disaster areas, eliminating the current law requirement that personal casualty losses must exceed 10% of adjusted gross income;
- Granting penalty-free access to retirement funds; and
- Encouraging charitable giving from Americans across the country.”
Regarding the charitable giving provisions, the law temporarily suspends limitations on the deduction for charitable contributions associated with qualified hurricane relief made before December 31, 2017.
On Sept. 29, U.S. Department of Health and Human Services (HHS) Secretary Tom Price resigned his position after drawing public scrutiny and an investigation by his agency for taking private jets using taxpayer money. According to POLITICO, “POLITICO revealed that Price flew at least 26 times on private aircraft at a cost of hundreds of thousands of dollars, a sharp break with his predecessors’ practice. Many of Price’s flights were between major cities that offered inexpensive alternatives on commercial airlines, including Nashville, Philadelphia and San Diego.” POLITICO also noted the flights cost taxpayers over $1 million since May. Deputy Assistant Health Secretary Don Wright has been appointed as the Acting HHS Secretary.
The Internal Revenue Service (IRS) has implemented some changes to Form 1023-EZ, which is a streamlined application in order to be recognized as a 501(c)(3) exempt organization (EO). They believe that these changes will increase the processing times for the form. According to IRS Tax Exempt and Government Entities FY (fiscal year) 2018 Work Plan:
“Fiscal Year 2018 Rulings & Agreements EO expects to receive an increased number of determination applications in FY 2018. In early 2018, EO will implement revisions to the Form 1023-EZ, including a required activity description and additional questions on gross receipts, asset thresholds, and foundation classification. As a result of these changes, EO expects the average processing time for a Form 1023-EZ to increase. EO will continue pre-determination reviews of a statistical sample of Form 1023-EZ applications and will continue to analyze the data from these applications to mitigate risks and identify opportunities to improve this form and its instructions. EO will also implement enhancements to the Form 8976 submission platform to reduce the number of rejections due to non-payment of the required user fee.”
Exclusive from our colleagues at the National Council of Nonprofits.
Oregon Supreme Court Upholds Portland Arts Tax
The voter-approved “arts tax,” a levy of $35 per person in Portland, Oregon, to fund arts and music education expansion in local schools, is constitutional under state law, the Oregon Supreme Court unanimously ruled last month. The ruling comes from a lawsuit filed by a retired attorney claiming the tax violated a state constitutional provision prohibiting flat-rate per-person “head taxes.” A Portland Commissioner called the decision “a big win” saying, “Thanks to the ruling…over 30,000 Portland children will continue to have arts education in school.” Despite the ruling, the program has fallen short of expectations, according to a recent report, due to the city’s inability to collect the tax from a quarter of residents who owe it, and from an unreasonably low cap on administrative costs (five percent) that was written into the law the voters passed in 2012.