In This Week's Edition of Snapshot…
- House Appropriations Committee Advances Measure to Weaken Johnson Amendment
- New Analysis of the REDUCE Act
- Trump Administration to Release Plan for Reorganizing Executive Branch
- Primary Elections Held in ME, NV, ND, SC, and VA
- In the State: Blue States Continue to Push SALT Workarounds, North Carolina Removing a New Tax on Tax-Exempts, and Non-Itemizer Charitable Deduction Proposed in New Jersey
Yesterday, the House Appropriations Committee marked up the 2019 Financial Services and General Government (FSGG) spending bill. The Committee voted to include language in the appropriations bill (which appears in Sec. 112) that would prevent the Internal Revenue Service (IRS) from enforcing the Johnson Amendment as it applies to any “church, integrated auxiliary of a church, or convention or association of churches.”
Rep. Debbie Wasserman Schultz (D-FL) offered an amendment to remove Section 112, but it was voted down along party lines. Last year Reps. Scott Taylor (R-VA) and Charlie Dent (R-PA) were the only Republican members of the Committee who supported the amendment. Rep. Dent resigned from Congress earlier this year, and Rep. Taylor switched his position to oppose the Wasserman Schultz amendment. Three Committee members did not vote: Reps. Mark Amodei (R-NV), Kay Granger (R-TX), and Dutch Ruppersberger (D-MD).
During the debate, Reps. Wasserman Schultz, Barbara Lee (D-CA), David Price (D-NC), and Katherine Clark (D-MA) spoke in support of nonprofit nonpartisanship. Only Rep. John Culberson (R-TX) spoke against the amendment and in favor of keeping Section 112 in the bill. In her closing statement, Rep. Wasserman Schultz said, “Let us not turn our pews into pits of partisan conflict.”
Moving forward, the FSGG bill is likely to be combined with two other appropriations bills and taken to the House floor later this month or in early July. Last year the same amendment was attached to the same spending bill (for fiscal year 2018) and was one of the last controversial issues removed from the omnibus spending bill in House-Senate negotiations just days before Congress passed it in early March 2018.
On Monday, the Council, the National Council of Nonprofits, and 143 organizations sent a letter addressed to the Appropriations Committee Chairman Rodney Frelinghuysen (R-NJ) and Ranking Member Nita Lowey (D-NY) expressing strong opposition against the language in Section 112 of the 2019 FSGG spending bill.
Last month, Rep. Tom Reed (R-NY) introduced the Reducing Excessive Debt and Unfair Costs of Education (REDUCE) Act of 2018 (H.R. 5916). The bill comes as part of a broad plan Rep. Reed announced in late 2016 to address college affordability. The proposal targets colleges and university endowment-spending practices and gift acceptance policies as a means of increasing affordability.
While the intent of the bill is to address college affordability, the Council is particularly concerned about a number of provisions in the legislation which relate to charitable giving. First and foremost, the Council opposes the limitations this legislation would place on contributions from donor advised funds (DAFs) and private foundations to colleges and universities. The Council recognizes the array of legitimate reasons beyond scholarships that a restricted grant from a DAF or private foundation would be made to a college or university (including, but not limited to, research, academics, infrastructure, etc.), and believes this flexibility should be maintained.
The Council is also opposed to the manner in which this legislation would limit the value of the charitable deduction dependent on a subjective determination of which causes should be considered worthier than others. The Council sees this as a slippery slope that could jeopardize the vibrancy and diversity of the charitable sector.
Finally, the Council is generally concerned about governmental interference with an institution’s ability to make strategic decisions about how to prioritize spending from their endowment. Though this bill does not directly impact charitable foundation endowments, it demonstrates a willingness by policymakers to apply overly broad requirements for endowment administration that fail to account for the uniqueness of individual business models and situational realities.
You can read the Council’s more complete analysis of the REDUCE Act here.
In the next few weeks, President Trump is expected to release a plan that would significantly reorganize the executive branch. According to POLITICO, “The report [plan]…by the White House Office of Management and Budget, seeks to move safety-net programs, including food stamps, into [the Health and Human Services Department] HHS, two sources with knowledge of the plan told POLITICO. The plan would also propose changing the name of the sprawling department, while separately seeking cuts at the U.S. Agency for International Development and the State Department. The $70 billion food stamp program, formally known as the Supplemental Nutrition Assistance Program, is run by the Agriculture Department and makes up the vast majority of the department’s budget. The program helps more than 40 million low-income Americans buy groceries each month.”
The article goes on to note that the plan is still being finalized but is supposed to be released sometime in June. This effort by the Trump administration comes from one of President Donald Trump’s early executive orders to make the federal government more efficient.
In the weeks ahead, we will include updates from the midterm election trail. This is intended to provide nonpartisan, matter-of-fact election news about the primary races that will play a key role in the outcome of the November elections.
This week saw primary elections in five states—Maine, Nevada, North Dakota, South Carolina, and Virginia—with races in South Carolina and Virginia grabbing the most attention.
One of the most interesting storylines of Tuesdays races, was that incumbent Rep. Mark Sanford (R-SC) lost to state Rep. Katie Arrington. Rep. Sanford has been critical of President Donald Trump, who ended up tweeting support of Ms. Arrington before the polls closed. According to the Wall Street Journal, “In the Charleston-based district in South Carolina, Rep. Katie Arrington was declared the winner by the Associated Press. She accused Mr. Sanford of being disloyal to the president, portraying him as a Trump adversary because he had been openly critical of some of the president’s policies and provocative statements. Mr. Trump weighed in directly in the race Tuesday afternoon—just three hours before the state’s polls closed—with an endorsement of Ms. Arrington, in a Twitter message that attacked Mr. Sanford. ‘Mark Sanford has been very unhelpful to me in my campaign to [Make America Great Again],’’ he tweeted. ‘He is MIA and nothing but trouble.’”
In Virginia, another closely-watched race yielded a Republican Senate candidate who was also running a campaign tied to President Trump. According to POLITICO, “Meanwhile, Republicans in Virginia are sweating their new Senate nominee, Corey Stewart, who said when he began his campaign that ‘the era of the kinder, gentler Republican is over.’ [Mr.] Stewart, coming off a narrow loss in Virginia’s GOP primary for governor, made a name for himself—and sparked jitters among Republicans—with his sharp rhetoric on immigration, abortion rights and, most significantly, his vocal opposition to the removal of Confederate monuments.”
Exclusive from our colleagues at the National Council of Nonprofits.
Are taxpayers in blue (more liberal, Democratic-leaning) states better off after the federal tax law than before? That’s the question in “Blue states find ways to undercut GOP tax law.” The answer in the POLITICO analysis is a clear “yes,” assuming the states enact certain tax avoidance schemes and assuming further that the IRS doesn’t shut down the approaches. To date, three states—Connecticut, New Jersey, and New York—have established “SALT workarounds,” i.e., laws that allow state taxpayers to pay their state/local taxes (SALT) through contributions to government-run charities.
The workarounds allow taxpayers to avoid the new $10,000 cap on federal deductions for SALT by instead claiming deductions for uncapped charitable donations. POLITICO observes that the state workarounds also enable their taxpayers to combine several types of taxes—income, sales, property—between which taxpayers previously were required to choose. As a result, taxpayers in those states may now be able to deduct more on their federal taxes than before the federal tax law was enacted, and states could reap increased revenues as taxpayers overpay state obligations, via charitable contributions, in order to maximize federal tax breaks.
Many charitable nonprofits have expressed reservations about the SALT workarounds because of concern that the laws could reduce giving to true charitable organizations, anxiety about public and donor confusion, and questions about governance and transparency. Those may become moot when the IRS and Treasury issue proposed regulations that address the legality of the SALT workaround laws. Last month, the IRS announced it will be writing regulations on SALT workaround efforts, warning taxpayers that “federal law controls the proper characterization of payments for federal income purposes.” Scholars have noted, however, that states have been providing tax credits in exchange for charitable donations for many years, including other types of workaround schemes in more than half the states. Even if the IRS and Treasury were to issue proposed regulations, it could take years to resolve as litigation is certain.
North Carolina Removing a New Tax on Tax-Exempts
North Carolina just blocked automatic taxation of tax-exempt organizations under state law as a result of the federal tax law that levies unrelated business income taxes (UBIT) on foundations and charitable nonprofits that pay for their employees’ parking and transit expenses. A provision in the state budget ensures that all nonprofits will not be required to pay a 3% state UBIT on the amounts they pay for their employees' parking and transit expenses. Because many nonprofits expressed concerns about this new tax, the North Carolina Center for Nonprofits asked state legislators to "decouple" the state tax code from this new federal tax so nonprofits don't have to pay state income tax (or file state tax forms) for these expenses. Gov. Roy Cooper vetoed the budget legislation, but the state legislature overrode the veto on Tuesday. A similar bill to decouple the new tax from state law is pending in New York.
Non-Itemizer Charitable Deduction Proposed in New Jersey
Lawmakers in New Jersey, which does not currently provide a charitable tax deduction under state law, are considering bipartisan legislation to allow all taxpayers to deduct charitable contributions from their state income taxes, regardless of whether they itemize on their tax forms. New legislation (S-2179/A-307) would permit a taxpayer to deduct from New Jersey income taxes the amount of charitable contributions made to a “qualified New Jersey-based charitable organization” equal to the amount that is allowable as a charitable deduction under federal income taxes. Taxpayers need not itemize on their federal returns in order to claim the state deduction. The Center for Non-Profits in New Jersey strongly supports this legislation. Currently, taxpayers in Colorado and Minnesota have the benefit of making charitable deductions on their state taxes even when they take the federal standard deduction.