In This Week's Edition of Snapshot…
- Senators Ask Treasury for UBIT Delay
- Chairman Brady Releases Lame Duck Tax Package
- Congress Faces Dec. 7 Deadline to Pass Spending Legislation
- Sen. Grassley Chooses Finance Gavel
- Cindy Hyde-Smith Wins Election in Mississippi
- State Spending Trends Analyzed
On Tuesday, Senators Chris Coons (D-DE) and Jim Lankford (R-OK) sent a letter to Treasury Secretary Steven Mnuchin to ask for a delay in implementation of the new unrelated business income tax (UBIT) provisions that took effect on Jan. 1, 2018, after the passage of last year's tax code overhaul. These new provisions require that 1) tax-exempt organizations with more than one unrelated trade or business activity treat each activity separately for the purposes of calculating unrelated business income, and 2) tax-exempt organizations pay UBIT on the value of certain fringe benefits provided to employees—such as transportation benefits and on-premises gyms.
According to Sen. Coons' press release, "Nonprofits in Oklahoma, Delaware, and all across the country provide countless services to Americans in need, including combating homelessness, lifting faith, providing health care to the medically underserved, and improving outcomes for disadvantaged youth...Requiring these organizations to pay a federal tax on these employee benefits, something they have never been required to do before, will cause them to not only face an increased operating cost, but also an administrative burden."
The letter asks Treasury to delay the implementation of the UBIT provision for a full year after the final regulations are issued by Treasury. The Council commends Senators Coons and Lankford for speaking out on this vital issue and will continue to seek a delay in the implementation of these provisions.
On Monday, House Ways and Means Chairman Kevin Brady (R-TX) released a package of several draft bills that he hopes to advance in the lame duck session of Congress. The legislation would address several issues, including:
- Technical corrections for the 2017 tax overhaul;
- Tax extenders;
- Retirement savings incentives;
- IRS reform; and
- Temporary tax relief for victims of natural disasters.
In a statement, Chairman Brady said, “The policy proposals in this package have support of Republicans and Democrats in both chambers. I look forward to swift action in the House to send these measures to the Senate.” According to POLITICO Pro, Senate Finance Committee Chairman Orrin Hatch (R-UT) expressed support for the tax package on Tuesday, saying, “I am pleased that the package includes policies I've championed” like a retirement proposal and "common sense policies to streamline and improve the IRS." Chairman Hatch continued, "I am currently reviewing the proposal in its entirety and look forward to consulting with Finance Committee members to determine next steps."
The legislation—which would need bipartisan support to reach the 60-vote threshold to pass the Senate—has been met with varying degrees of criticism from Senate Democrats. Senate Finance Committee Ranking Member Ron Wyden (D-OR) expressed his dismay that the legislation was not shared with him before it was released to the media, saying "My take is, when the other side essentially learns about it for the first time in the press, which was last night, it is invariably messaging and gamesmanship."
Another Democratic Committee member, Sen. Sherrod Brown (D-OH), demanded that any year-end tax legislation must address the recent layoffs of nearly 14,000 General Motors employees, stating that “This bill is meaningless unless [President Donald Trump] actually addresses the real issues of the day,” according to POLITICO. Another senior Democrat on Committee conveyed doubt that this tax package could move in the lame duck session, saying that it will be “extremely challenging” to move the legislation given that his colleagues will likely want to have a say over what’s in the bill—noting that time will be an issue given that they are running up against a deadline of Dec. 7 to pass spending legislation.
It remains unclear whether this package—as a whole or as a selection of its components—will be able to advance before the Congress recesses for the end of the year.
Following the contentious midterm election cycle, members of Congress must now come to an agreement on spending legislation by the Dec. 7 deadline—or face a potential partial government shutdown. One of the major questions in this looming battle is whether President Trump will sign legislation that does not include what he sees as sufficient funding for his border wall.
According to The Hill, “President Trump said in an interview published early Wednesday that he would ‘totally be willing’ to shut part of the government down if Congress does not approve a $5 billion budget to build his proposed wall along the U.S. southern border.” The $5 billion number was the amount of border security funding included in the House’s version of this bill, whereas the Senate version only included $1.6 billion.
Congress has the option of delaying this spending fight into 2019 if they cannot reach an agreement, but this has been met with disapproval from an incoming freshman class of Congress that would prefer to start the 116th Congress with a clean slate.
Earlier this month, Sen. Chuck Grassley (R-IA) announced his intention to give up his chairmanship of the Senate Judiciary Committee in order to become the chairman of the Senate Finance Committee.
According to POLITICO, “[Sen.] Grassley's move to Finance wasn't a given, since the Judiciary panel has played an outsized role in the successful confirmation of more than 80 of President Donald Trump's nominees to lifetime appointments on the federal bench. That number could include future Supreme Court justices beyond Neil Gorsuch and Brett Kavanaugh in the next Congress, heightening the influence of the Judiciary chairman. But [Sen.] Grassley, a former Finance chairman, opted to return to a committee that also enjoys extensive jurisdiction, including taxes and trade as well as Medicare and Medicaid. The Iowa Republican is set to replace retiring Sen. Orrin Hatch (R-Utah) as Finance chief next year, while also replacing him as Senate pro tem, a post traditionally given to the longest-serving majority senator that is also third in the presidential line of succession.”
Senator Lindsey Graham (R-SC) is in line to replace Sen. Grassley as the chairman of the Judiciary Committee. When Sen. Grassley previously was the chairman of the Finance Committee, he raised concerns about donor advised funds, and “excessive” compensation of nonprofit executives, which is something for the Council and the philanthropic sector to monitor during the 116th Congress.
On Tuesday, Sen. Cindy Hyde-Smith (R-MS) won her runoff election to serve the remaining two years of former Sen. Thad Cochran’s term. According to POLITICO, “[Sen.] Hyde-Smith had 54 percent of the vote to Espy’s 46 percent with 95 percent of precincts reporting after the Associated Press called the race. The result means Republicans will hold a 53-47 majority in the Senate next year, and it makes [Sen.] Hyde-Smith the first woman elected to represent Mississippi in the Senate. She will have to run for reelection to a full term in 2020, after being appointed to fill Thad Cochran's seat earlier this year.”
Exclusive from our colleagues at the National Council of Nonprofits.
States hit a new record this year in state spending at $2 trillion, according to a new analysis by the National Association of State Budget Officers (NASBO). The increase comes in part due to federal policy changes, including the new federal tax law and increased federal spending. Fiscal year (FY) 2018 saw $838 billion in state tax revenues, a more than 6 percent increase from last year, but some of these funds were a result of early-filing by taxpayers in response to the federal tax law—a one-time bump. Also, federal funding to the states rose by 5.7 percent in FY 2018, much of which went to transportation, education, and the Medicaid program, which has grown to be the largest share of state budgets.
Legislatures boosted state spending by an average of 4.6 percent during the past fiscal year as a result of expected increased revenues from individual income taxes related to the federal tax changes. However, NASBO found that total public assistance, defined as spending on the Temporary Assistance for Needy Families (TANF) program and other cash assistance programs, increased by an estimated 0.7 percent in fiscal 2018, after declining by 2.1 percent in fiscal 2017. Public assistance represented 1.3 percent of total state expenditures in FY 2018. The report determined, “While the level of federal funding to states has fluctuated over the past several years, spending growth from states’ own funding sources has been more stable as the national economy has gradually improved and states’ revenues have slowly rebounded from the national recession.” The statement can be seen as a warning for future state budget debates as the Trump Administration is expected to promote severe federal spending cuts that, if enacted, would significantly reduce the flow of dollars to the states, and ultimately to nonprofits providing services on their behalf.