Please note, we will not be sending Washington Snapshot next week due to the 4th of July holiday. We hope everyone enjoys a safe and fun day off!
In This Week's Edition of Snapshot…
- Justice Kennedy Announces Retirement
- Rettig Hearing
- House Leaders Willing to Discuss UBIT Issues for Tax Reform 2.0, Says Brady
- President Trump Unveils Proposal to Reorganize the Federal Government
- Treasury Releases Complete List of Opportunity Zones
- Treasury targets SALT workarounds
- Spotlight is on New York Following Major Upset in Democratic Primaries
- In the States: Massachusetts Meets in the Middle on Ballot Measures, New Jersey Mandatory Online Registration
Yesterday, Supreme Court Justice Anthony Kennedy announced he will be retiring from the nation’s highest court at the end of July. According to the New York Times, “Justice Kennedy, 81, has long been the decisive vote in many closely divided cases. His retirement gives President [Donald] Trump the opportunity to fundamentally change the course of the Supreme Court. A [President] Trump appointee would very likely create a solid five-member conservative majority that could imperil abortion rights and expand gun rights.”
After the 2016 fight blocking a vote on then-President Barack Obama’s nominee, Merrick Garland, to fill the seat vacated by the death of Antonin Scalia—which ultimately resulted in President Trump’s successful nomination of Neil Gorsuch to fill that slot—there will likely be another contentious nomination process in the coming months. Senate Majority Leader Mitch McConnell (R-KY) has already announced that he plans to hold a vote on President Trump’s nominee this fall.
Last Friday, Senate Finance Committee Chairman Orrin Hatch (R-UT) announced a hearing to consider President Trump’s nominee to lead the IRS. The hearing to consider Chuck Rettig’s nomination to be the IRS commissioner is scheduled for today at 9:30 a.m. ET.
Mr. Rettig is a tax attorney from California who served as the Chair of the IRS Advisory Council. If confirmed, Rettig will oversee the implementation of the new tax law passed in 2017, as well as the first round of tax-filing under the updated code.
The term of the IRS commissioner is five years, so if confirmed, Rettig would serve until 2022, when the current term (which has been occupied in the interim by Assistant Secretary of the United States Treasury for Tax Policy David Kautter) expires.
On Tuesday, the Washington Post hosted an event to interview tax experts—including House Ways and Means Committee Chairman Kevin Brady (R-TX) and White House Chair of the Council of Economic Advisers Kevin Hassett—on the state of the American economy six months after the passage of tax reform.
On the matter of the UBIT changes enacted under the 2017 tax code overhaul, Republican leaders have been receiving a great deal of pushback from churches and other religious entities over the significant tax bills these institutions—and all 501(c)(3) charitable organizations—are facing as a result. “What we’re talking about is an income tax on the church for providing parking to its employees,” said Mike Batts, chairman of the board of the Evangelical Council for Financial Accountability. He continued, “The whole idea of tax exemption for nonprofit organizations that are doing charitable, religious and educational work is for them not to be on the same playing field as for-profit businesses when it comes to taxes, in order to incentivize the good work they do to make our society better.” In response, during Tuesday’s interview, Chairman Brady stated, “We ought to be open to making improvements and fine tuning it as we go along because these are major changes so, yeah, we will be listening very authentically with any organization that has improvements that they think we can make."
Additionally, in reference to “Phase 2” of tax reform, Chairman Brady revealed that he hopes to release a proposal in August. "I don't see it as one bill," Chairman Brady said during the interview. "I see it as a package of two, three, or four approaches with permanency [of the individual tax cuts that were passed on a temporary basis in 2017] being one of them."
Last week, President Donald Trump proposed sweeping changes to how the federal government is organized. According to the Washington Post, “The White House on Thursday proposed a radical overhaul of the federal government that, if implemented, would transform the swath of agencies that manage Americans’ food, public education, social services, and even air travel. … ‘We’re dealing with a government that’s so byzantine you don’t know where to start,’ Mick Mulvaney, director of the Office of Management and Budget, told President Trump’s Cabinet as he unveiled the results of a 14-month effort he called one of the ‘biggest pieces so far of our plan to drain the swamp.’ As an example, Mulvaney said 45 job-training programs scattered across government would be consolidated into 16."
However, the Post article goes on to note that many of the proposals in the larger plan would need approval by Congress, and Democrats are expected to oppose the changes.
In April, the U.S. Department of Treasury announced the first round of designated “opportunity zones” for 18 states. Last week, Treasury issued Notice 2018-48, which provides a complete list of opportunity zones with new designations (since April) for four additional states.
You can learn more about opportunity zones on our website.
Yesterday, the Wall Street Journal reported that as the Treasury Department targets workarounds to the new tax law, the impact of this could extend beyond high-tax states like New York, New Jersey, California, and Connecticut.
One example is in the state of Georgia, where a scholarship program that serves as a lifeline to rural hospitals and private schools may be in danger.
The Journal noted, “According to a recent paper from law professors, 33 states currently have more than 100 credit-for-donation programs, for varying purposes and at various credit percentages.” Tax experts believe that the federal government will find it difficult to develop regulations to stop the workarounds in New York, New Jersey, and Connecticut without also limiting existing tax credits in Georgia, Alabama, South Carolina, and elsewhere. However, Rep. Kevin Brady (R-TX), chairman of the House Ways and Means Committee, said Treasury would be able to create a distinction between “relatively small, modest” pre-existing programs and the newer, more expansive workarounds.
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 (Colorado, Maryland, New York, Oklahoma, and Utah), with runoff elections in two more (Mississippi and South Carolina).
In New York, the buzz has been primarily around two races. The first was Alexandria Ocasio-Cortez’ upset victory against incumbent and current House Democratic Caucus Chair Joe Crowley for the seat in New York’s 14th district, which covers parts of Queens and the Bronx. As reported by the New York Times, “The defeat of Representative Joseph Crowley in a Democratic primary qualifies as an unheard-of event: A powerful lawmaker, who controlled the Queens Democratic Party and was seen as a potential speaker of the House, crumbled against a challenge from Alexandria Ocasio-Cortez, a 28-year-old liberal activist and first-time candidate who was backed by a few national progressive groups.” The second race of note in New York was for the 11th district, covering Staten Island. Republican incumbent Rep. Dan Donovan was victorious in his race against former Rep. Michael Grimm, who resigned from Congress in January 2015 after pleading guilty to charges of felony tax fraud. Rep. Donovan, who had the endorsement of President Trump, credits the President’s support as a contributing factor to his success against former Rep. Grimm.
President Trump’s other endorsement, of South Carolina’s incumbent candidate for Governor Henry McMaster, also paid off. Gov. McMaster—a loyal ally to President Trump and the first statewide-elected official to endorse him in his bid for the presidency in 2016—was successful in overcoming a challenge from Iraq War veteran John Warren in a runoff election. The endorsement by President Trump was considered by some to be a risky expenditure of political capital, given that it would have no bearing of the balance of power in Congress. Regardless, the President’s decision to campaign on behalf of McMaster has many watching closely to see how much influence the President’s endorsement would have on the outcome of this race.
Exclusive from our colleagues at the National Council of Nonprofits.
Last week, the Massachusetts Legislature passed a “grand bargain” to address three ballot proposals regarding paid family leave, sales taxes, and minimum wage, which likely would have drawn nonprofits into advocacy campaigns for and against the measures. The compromise provides for no reduction in the sales tax rate, the creation of a permanent two-day sales tax holiday, an increase in the minimum wage from $11 per hour to $15 per hour over five years (as opposed to four years), and creation of paid family leave for up to 12 weeks and paid medical leave for up to 20 weeks. The Massachusetts Nonprofit Network stated, “Overall, we are pleased with the legislative compromise reached,” adding, “the spirit of collaboration, on exhibit during these negotiations is at the core of our sector.” The measure awaits the governor’s signature.
After years of attempted implementation, the New Jersey Division of Consumer Affairs announced that effective May 1, all annual charities registration renewals and extension requests must be filed through a state-run online portal. Most charitable organizations that solicit funds in the state are required to register and file annual financial reports, but the new rules exempt some religious and education organizations, as well as small organizations that raise less than $10,000 annually and do not use a professional fundraiser. The Center for Non-Profits, the state association of nonprofits in New Jersey, is asking the Division to revert to accepting paper filings due to many concerns about the online portal, including that it fails to meet the statutory requirement to incorporate Form 990 information by reference, as well as vague instructions, lack of available context-sensitive assistance, difficulty in locating and uploading information, and an unresolved backlog.