In This Week's Edition of Snapshot
- Non-itemizers charitable deduction bill introduced in the House
- Tax Reform Update: Congress makes progress on key budget milestones for passing tax reform
- Top Ways & Means member raises UBIT at tax reform event
- Democrats urge colleagues to maintain the Johnson Amendment
- President Trump says he won’t fill many vacant appointment positions in agencies
- In the States: Learning from the states about tax reform
Late last week on Oct. 5, Rep. Mark Walker (R-NC) introduced a bill to enact a “universal charitable deduction” in the House. The Universal Charitable Giving Act of 2017 (H.R. 3988) would maintain the charitable deduction as it exists under current law, but would add a non-itemizer charitable deduction—which would allow individuals who take the standard deduction to claim the charitable deduction on top of that (with a cap of 1/3 the amount of the standard deduction). Rep. Walker, a well-known fiscal conservative who chairs the House Republican Study Committee, put forward this bill with the intent for it to be incorporated into tax reform discussions—and eventually into a tax reform bill.
The Council released a statement yesterday from President & CEO Vikki Spruill stating, in part, “This proposal places the discussion about a universal charitable deduction squarely in the midst of the ongoing tax reform negotiations, and that’s good news for foundations and the nonprofit sector.” The statement continues, “We do have some concerns about language in the bill which limits the ability of non-itemizers to claim the charitable deduction to one-third the value of the standard deduction.”
The Council has been working for almost a year now to raise awareness of the potential negative implications of tax reform on charitable giving, and remains committed to securing tax legislation that preserves the full scope and value of the charitable deduction. We are thankful for the Congressman’s leadership on this issue, and look forward to working with him, his staff, and our members in his congressional district to engage further in this important conversation.
As evidenced by the new universal deduction bill, there continues to be energy and momentum around tax reform. With the House narrowly passing its budget resolution last week, the pressure is on in the Senate to pass a budget resolution that would pave the way for Congress to pass tax legislation with only Republican support. With only two votes to spare, it remains in question whether Senate Republicans will be able to pass said budget resolution, as support for the bill by Sens. Rand Paul (R-KY) and John McCain (R-AZ) remains uncertain. Unease among Republicans has continued to grow as tensions between Sen. Bob Corker (R-TN) and President Donald Trump have escalated.
Sen. Corker—who recently announced he would retire from Congress at the end of 2018—has been vocal about not supporting a tax reform plan that would add to the federal deficit. President Trump responded on Twitter with a series of tweets, which added fuel to the fire. Worried that these tensions could alienate Sen. Corker enough to pull his support for the budget resolution or forthcoming tax legislation, Senate Republicans have urged the two to set aside their differences and work together toward tax reform.
Yesterday, President Trump continued his efforts to promote tax reform in an appearance in Harrisburg, PA. Speaking in front of a group that comprised of hundreds of truckers, Trump indicated that the plan would “pump an additional $4,000 into the average annual income of American households.” This is the President’s latest stop in promoting tax reform in states with vulnerable Democratic senators up for reelection in 2018, with the goal of pressuring them into supporting the Republican-driven plan. Sen. Bob Casey (PA) was the target yesterday, and President Trump previously spoke in North Dakota (Sen. Heidi Heitkamp) and Indiana (Sen. Joe Donnelly).
Earlier this week, and in response to the “Big Six’s” release of their Unified Framework for tax reform, the Urban Brookings Tax Policy Center (TPC) released an analysis of the unintended consequences of repealing the estate tax. POLITICO also recently released a chart detailing the effects of changing the estate tax on low-income filers. According to the analysis, “the unintended effects on charities are also a significant concern. Charities depend on fund raising, and bequests alone made up around 8 percent of all donations they received in 2016. The estate tax is a major incentive to charitable giving and bequests, and the potential financial strain on the non-profit sector is something lawmakers should consider when debating estate tax repeal.”
In Senate Finance Committee staff news, POLITICO Pro reported yesterday that Preston Rutledge will be nominated by the White House as the assistant secretary for the Employee Benefits Security Administration. According to the article, “Rutledge has been the committee’s senior [Republican] tax and benefits counsel since 2011. Prior to that, he was for ten years a tax law specialist at the IRS.”
Yesterday morning Council staff attended an event hosted by The Hill titled, “Cracking the Tax Code: Prospects for Reform.” The event featured a number of expert speakers (pictured below) who shared their insights into the tax reform process.
One notable takeaway from this discussion was Rep. Pete Roskam’s (R-IL) remarks about unrelated business income tax (UBIT). Chairman of the House Ways and Means Subcommittee on Tax Policy, Rep. Roskam brought up the issue of finding “pay-fors” to offset the cost of the desired tax cuts laid out in the recently released Unified Framework for tax reform. He cautioned that—though lawmakers have stated their commitment to preserve charitable giving—charities and nonprofits still could be the target of attempts to find revenue-raising provisions for tax legislation, at least with regard to UBIT.
Many of you will recall the changes to UBIT proposed under former Ways and Means Chairman Dave Camp’s tax reform plan (see bottom of page 3). This proposal would have expanded the scope of activities under which UBIT would be applicable for charities and nonprofits, as well as changing the way the tax is calculated and the penalties for certain situations. We began hearing murmurs from Capitol Hill about dusting-off the Camp Draft to try and find “pay-fors” after the Big Six put out their statement of principles in early August—officially taking the border adjustment tax (BAT) off the table as the primary revenue-generating provision in forthcoming tax reform legislation.
Also of note at this event were comments from Chairman of the President’s Council of Economic Advisers Kevin Hassett, sharing that the Administration is considering a combination of permanent and temporary tax changes in order to try and gain support from Democrats.
Pictured above (left to right): Rep. Pete Roskam (R-IL-6) and Editor-in-Chief for The Hill Bob Cusack.
Pictured above (left to right): Rep. Richard Neal (D-MA-1) and Editor-in-Chief for The Hill Bob Cusack.
Pictured above (left to right): Partner of Americas Tax Policy Leader with Ernst & Young Cathy Koch, Vice President of Tax Policy and Chief Tax Counsel with the U.S. Chamber of Commerce Caroline Harris, President of The Committee for a Responsible Federal Budget Maya MacGuineas, President & CEO of the Small Business and Entrepreneurship Council Karen Kerrigan, and Finance Reporter for The Hill Sylvan Lane.
Almost 100 Democratic members of Congress signed a letter urging Congress to not repeal the “Johnson Amendment”, which currently prohibits 501(c)(3) charitable organizations from participating in, or intervening in (including the publishing and distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office. The letter, addressed to the tax-writing House Ways and Means Committee, said, “This policy has successfully shielded our nation’s charitable community against the rancor of partisan politics and allowed them to freely address humanitarian, social, and community-specific problems in a nonpartisan manner.” The Hill reported that, “Ways and Means Committee Chairman Kevin Brady (R-TX) has said that he wants to include repeal of the Johnson amendment in a tax bill. President Trump earlier this year vowed to ‘totally destroy’ the Johnson amendment. In May, he signed an executive order designed to ease enforcement of the measure.”
The Council signed onto the letter and continues to remain engaged on this issue. We appreciate the support of the members of Congress who are fighting to protect the Johnson Amendment in order to keep politics out of the philanthropic sector.
In an interview published on Tuesday, President Donald Trump said that he believed the size of the federal government is too large and that he would therefore leave many of the vacancies in some of the agencies vacant.
According to POLITICO, “Trump told Forbes in an interview…that the size of some federal agencies is ‘unnecessary,’ offering an explanation as to why he has left vacant so many positions that would require a presidential appointment. ‘I'm generally not going to make a lot of the appointments that would normally be—because you don't need them,’ Trump told Forbes. ‘I mean, you look at some of these agencies, how massive they are, and it's totally unnecessary. They have hundreds of thousands of people.’” POLITICO went on to note that a little under half of the ‘key positions’ in federal agencies—according to a database maintained by The Washington Post—requiring a presidential appointment have no nominee.
Exclusive from our colleagues at the National Council of Nonprofits.
As Congress begins to take on tax reform in earnest, past and ongoing experiments in the states provide data and experiences that could influence decision making on a number of issues affecting foundations and nonprofits, including charitable giving and the impact of tax rates.
For example, in 2011, the Hawaii Legislature imposed a cap on all itemized deductions, including charitable donations. Policymakers later found that the estimated $12 million in revenue to the state came at an unacceptable cost of at least $60 million per year in lost donations that support works in the community. Hawaii's Governor signed legislation removing the limit on charitable donations two years later, stating: “After having taken a close look at the impact this particular section of the law is having on charitable donations made to Hawaii's nonprofit organizations, we support carving out this portion of the law” to protect full deduction of charitable contributions. Based partly on this experience, Delaware and Oklahoma both considered and then rejected legislation this year that would repeal or cap charitable giving incentives.
In 2012 and 2013, Kansas famously enacted a series of tax cuts designed to generate unprecedented economic growth in the Sunflower State. The tax cuts reduced state revenue by billions ($849.0 million in FY 2016 alone), requiring legislators to make drastic cuts in spending for education, health, and many programs performed by nonprofits on behalf of the government. In short, the tax cuts resulted in reduced revenues rather than generating economic activity that would pay for the cuts. Citing the anemic economic growth, growing budget deficits, and steep spending reductions, the Legislature repealed the “Kansas tax reform experiment.”
Other experiments in the states are less drastic and may provide data that can positively influence the federal debate. Arizona adopted a provision last year that extends to April 15 the deadline for making donations to qualified charitable organizations for the preceding tax year. A few years earlier, Colorado expanded its Conservation Easement Tax Credit and increased the giving opportunities for enterprise zones to apply to more eligible nonprofits. Similarly, Missouri restored and expanded giving incentives for food pantries, pregnancy resource centers, and the Children in Crisis program after having let them lapse in 2011.
In the words of U.S. Supreme Court Justice Louis Brandeis, the states have tried “novel social and economic experiments without risk to the rest of the country." Federal tax reform is the ideal time to review the record of those experiments and take corrective action.