In This Week's Edition of Snapshot…
- Democrats Throw Cold Water on Immediate Fixes to Tax Reform
- Tax-Writing Committees Add New Members, New Budget Chair Announced
- The Intersection of SALT and Charitable Contributions
- Immigration Agreement Could Unlock Funding Compromise
- IRS Estimates What it Will Take to Implement Tax Changes
- Administration Seeks to Expand Broadband in Rural America
- In the States: States Responding to New Federal Limit on State, Local Tax Deductions; Government-Nonprofit Contracting Reform Update
Yesterday, Democrats on the House Ways and Means Committee sent a letter to their Republican colleagues urging them to slow down efforts to pass legislation that would correct technical errors in tax code overhaul.
"It would be a mistake, at this time, to rush to introduce legislation to change H.R. 1 given all the uncertainty surrounding the law and its implementation," the letter says. It continues, in part, “For this reason, we will refrain from offering at this time any legislative fixes until the Ways and Means Committee has had an opportunity to hold hearings, with witnesses from the Administration, on proposed changes…”
After the recent election of Sen. Doug Jones (D-AL), which increased the number of senators caucusing with the Democrats by one (Republicans now have control of the chamber 51-49), Senate Leaders huddled to discuss changing committee ratios to match the slimmer Republican majority. As a result, Sen. Sheldon Whitehouse (D-RI) was appointed to the Senate Finance Committee as its newest member. Republicans now hold a 14-13 edge in committee.
Across the Capitol, the House’s tax-writing committee also saw an addition. Rep. Darin LaHood (R-IL) was selected to fill the spot on the House Ways and Means Committee vacated by Rep. Pat Tiberi (R-OH), who is retiring from Congress this month. According to POLITICO Morning Tax, “LaHood is the son of Ray LaHood, himself a former GOP congressman and Transportation Secretary under President Barack Obama. Darin LaHood replaced former Rep. Aaron Schock (R-IL) in 2015, meaning that the 18th District of Illinois went a couple years without a seat at the Ways and Means table.”
Tiberi’s retirement also created the need to shuffle the chairmanships of the Ways and Means subcommittees. Rep. Vern Buchanan (R-FL) took over the chairmanship of the Tax Policy Subcommittee. He replaced Rep. Pete Roskam (R-IL) who will now chair the Health Subcommittee (vacated by Tiberi). Finally, Rep. Lynn Jenkins (R-KS) will take over Buchanan’s previous role as the chair of the Oversight Subcommittee.
Also in the House, the Budget Committee will have a new chairman, with Rep. Diane Black (R-TN) leaving the post as she is running for governor in Tennessee. On Tuesday, Rep. Steve Womack (R-AR) won the endorsement of the Republican Steering Committee—the body that recommends members for committee assignments and leadership roles. He will need to be confirmed in a vote by the full House GOP Conference before he assumes the gavel. Womack beat back bids by Reps. Rob Woodall (R-GA) and Bill Johnson (R-OH) to secure the Steering Committee’s recommendation.
As part of the tax code overhaul that passed late last year, Congress made changes to limit the deduction of state and local taxes (SALT)—capping this itemized deduction at $10,000 for the aggregate of state/local property taxes and, either, state/local income or sales taxes. This quickly caused an uproar from lawmakers in states with high property tax rates. A vocal opponent of this change, New York Governor Andrew Cuomo, has gone so far as to call the provision “unconstitutional” and stated his intent to sue the federal government in his State of the State address this week.
Other critics of the new SALT limitations have suggested a different approach: allowing taxpayers to make charitable contributions to their state (equal to the amount owed in state taxes) instead of paying state income/property taxes—therefore, allowing them to claim a charitable deduction on their federal taxes.
There is debate about whether this type of workaround would be allowed by the IRS. An analysis authored by eight law professors suggests that this approach would be allowed by the IRS. An analysis from the Tax Foundation, on the other hand, suggests that this type of approach would not be allowed under current law. It is unclear at this point how the IRS will handle this issue if states proceed to pass such legislation.
As the deadline to fund the government approaches, Congress has yet to reach an agreement that will keep the government open when current funding expires on Jan. 19. House and Senate leaders have been discussing proposals, but looming in the foreground is a debate about immigration—specifically legal protections for undocumented children who were brought into the U.S. and had been protected under the Deferred Action for Childhood Arrivals program (DACA). Democrats have been looking to couple an agreement on protections for these children (Dreamers) with the must-pass government funding bill.
According to The New York Times, “Reaching an immigration pact is key to unlocking a broader agreement on Capitol Hill on a slew of issues, including federal spending levels, disaster aid and a children’s health insurance program. Democrats and Republicans have yet to strike a two-year budget agreement that has eluded them for months, largely because Democrats want to use their leverage on spending bills to seek protections for Dreamers.”
There was some increased optimism that an agreement could be reached after President Donald Trump hosted an on-camera, bipartisan meeting on Tuesday with Members of Congress on this issue.
Republicans in Congress have long been committed to “busting up” the IRS, as Ways and Means Chairman Kevin Brady (R-TX) often says. Even as Congress was working to overhaul the tax code late last year, the Ways and Means Committee was simultaneously holding hearings on how to improve the IRS. More recently, though, tax practitioners have begun raising concerns about making significant changes to the agency during a time when it will need to implement the biggest rewrite of the tax code since the 1980s.
POLITICO reports that several groups that have voiced concerns, including the National Conference of CPA Practitioners and National Taxpayer Advocate. The agency has predicted that it will need an additional $495 million in funding to implement this law, but Chairman Brady has not backed down from his promise to address this issue in 2018, stating that we are “going to see action this year on this issue.”
On Monday, President Donald Trump attended the American Farm Bureau Federation's Annual Convention in Nashville, TN, to announce the recommendations of the interagency Task Force on Agriculture and Rural Prosperity.
According to an email from the Department of Commerce, “The cornerstone of the Task Force’s report is ensuring that rural America can connect to reliable and affordable broadband internet service. More than 24 million Americans live in rural communities that lack the infrastructure needed for high-speed connections, according to an analysis by the National Telecommunications and Information Administration (NTIA). Building out wired and wireless broadband infrastructure in these communities would promote economic development and job growth, extend the reach of health care and allow for smart agriculture applications that could increase productivity and profitability for U.S. farmers. It would also allow these communities to attract businesses, especially in the fast-growing advanced manufacturing industry.”
Exclusive from our colleagues at the National Council of Nonprofits.
Governors and lawmakers in many so-called “high-tax states” have already started proposing state tax-law changes to work around the new federal tax law, which limits the tax deduction for state and local income and property taxes to $10,000. New York Governor Cuomo, in his 2018 State of the State address, said "we will explore the feasibility of a major shift in tax policy, and are developing a plan to restructure the current income and payroll tax system." He also said he is looking at creating “new opportunities for charitable contributions to support public programs.” Governor-Elect Murphy of New Jersey announced last week that he is working on a plan that would essentially convert payments for property taxes into tax-deductible charitable donations, a move that could enable taxpayers to take much larger charitable deductions from their federal income taxes than otherwise available under the new tax law. The proposal is similar to a bill introduced last week by the California Senate President that would permit charitable contributions to the California Excellence Fund in lieu of state taxes. State policymakers reportedly are relying in part on a 2011 memo from the Internal Revenue Service that appears to support full or partial tax credits for donations that fund tuition vouchers for charter, religious, and other private schools. The Tax Foundation predicts that these proposals may face legal hurdles.
Government-Nonprofit Contracting Reform Update: Proof Positive that Government Grantmaking Reforms Work
As state and local governments and nonprofits continue to struggle with declining resources, Illinois' 2017 Annual Report on the Grants Accountability and Transparency Act (GATA) identifies millions of dollars in savings and cost avoidance realized through grant/contracting reform efforts. For 2017, Illinois reports estimated savings or cost avoidance of more than $236 million. The most significant savings came from adopting a unified audit approach ($183 million) and following the unique Illinois process of centralizing the negotiation of indirect cost rates (saving $35 million).
Other important savings or avoidance of costs came in the areas of a centralized framework for risk assessments ($8.5 million), online grantee pre-qualifications ($4.4 million), and automated notice awards ($2 million). Many of the reforms were made possible because Illinois, through GATA, adopted the federal grants reforms from OMB Uniform Guidance, enabling the state to streamline operations into one set of policies and procedures for grants and contracts with nonprofits, regardless of their funding source. The grantmaking reforms adopted by Illinois provide a roadmap for other states, and the new report shows that governments can reduce costs while maintaining and even improving essential services through the work of charitable nonprofits.