Tax Reform and Charitable Giving Incentives

*For background information on this topic, scroll to the bottom of this page.

12/11/17, Congratulations! You Helped Make it Happen!

Late last night, we heard from the National Council of Nonprofits that the anti-Johnson Amendment language has been officially stripped from the tax bill on the grounds that it violates the Byrd Rule! (Republicans are using a process known as reconciliation to pass the tax bill, which only requires a simple majority in both chambers, but it also comes with constraints, namely the Byrd rule, named for the late West Virginia Senator Robert C. Byrd, which prevents reconciliation bills from containing provisions that aren’t primarily fiscal in nature on a simple-majority vote.)

The victory on the Johnson Amendment in the tax bill is official, as seen in the National Council of Nonprofits’ news release and in the Wall Street Journal, Washington Post, and Nonprofit Quarterly.

It’s a victory for now, but the fight may not be over. We must be vigilant as, no doubt, attempts will be made to slip policy riders into the next appropriations bill.

12/11/17, Update

As the House and Senate look to reconcile their bills, the conferees have been named and are scheduled to formally open deliberations this Wednesday, December 13.

House Republicans         Senate Republicans
Alaska – Young                      Alaska – Murkowski
California – Nunes                Ohio – Portman
Illinois – Roskam                  Pennsylvania – Toomey
Illinois – Shimkus                 South Carolina – Scott
Michigan – Upton                 South Dakota – Thune
South Dakota – Noem          Texas – Cornyn
Tennessee – Black                 Utah – Hatch
Texas – Bardy                         Wyoming – Enzi
Utah – Bishop

House Democrats            Senate Democrats
Arizona – Grijalva                 Delaware – Carper
Florida – Castor                     Michigan – Stabenow
Massachusetts – Neal           New Jersey – Menendez
Michigan – Levin                  Oregon – Wyden
Texas – Doggett                    Washington – Murray
Washington – Cantwell

Senate Independent
Vermont – Sanders

Now that a universal/non-itemizer deduction is not likely to be added to either version of the tax reform bill, our primary focus is to preserve nonprofit nonpartisanship and to strip out the anti-Johnson Amendment language (Section 5201) from the House-passed version.

Last week, the National Council of Nonprofits sent letters to the four congressional campaign committees – House and Senate, Democratic and Republican – alerting them to the problem for them if donors divert their funds to the newly politicized 501(c)(3) organizations.

An Action Alert from the Idaho Nonprofit Center ‘What If’s’ cuts through the rhetoric and lays out real-world examples of what’s wrong with changing the Johnson Amendment.

What If?
Imagine attending a nonprofit fundraising Gala and the featured keynote speaker is delivering a campaign speech. What if it isn’t a candidate that you support? What if that candidate is only speaking because the organization was “strong-armed” into allowing it? How will your perception of that nonprofit change based on the circumstances that made it possible for that candidate to garner that organization’s support?

What if you are attending a religious service and the clergy member leading it uses the time to stump for his own favorite candidate for office? Will you feel that your faith has been strengthened? How about when you get that monthly e-newsletter, and there’s a photo of your favorite religious or nonprofit leader shaking hands with a candidate you do not feel is fit for office? Would you question whether or not your investment of time and money in that nonprofit were truly being used to fulfill its mission?

Last week, the National Council of Nonprofits joined with the Council on Foundations and Independent Sector in sending a joint letter to all conferees (and all Members of Congress) urging them to leave the Johnson Amendment alone. The three organizations also placed an ad in Roll Call to emphasize this same point.

ACTION ITEM: Do you have contacts at the state Democratic and Republican committees? If so, consider forwarding them the letter from the National Council of Nonprofits and stressing that Section 5201 of the House-passed bill creates the same problem for them as for their federal counterparts. Read the letter and the news release for full details.

Stay tuned for more information. Here is a link to a full comparison of the House and Senate bills.  We’ll keep you updated in our Action Alerts this week and next.

11/29/17, VIEW the 11/27/17 National Webinar on Tax Reform and Charitable Nonprofits

The majority in the House and Senate are racing to enact comprehensive tax reform in time to place a bill on the President’s desk by Christmas. The House passed its own bill on November 16 and the Senate plans to pass its version by December 1, giving them time to work out the many differences and enact the first comprehensive reform of the tax code since 1986.

11/13/17, Update Re: Tax Reform Advances in House and Senate

The House of Representatives passed its version of the Tax Cuts & Jobs Act, H.R. 1, on November 16, 2017, exactly two weeks after the bill was introduced and without allowing any amendments to the original bill except by the Chair of the Ways and Means Committee. The vote was 227 to 205, with thirteen Republicans joining all Democrats in opposing the bill. The measure was touted by supporters as needed tax relief for middle-class taxpayers and small businesses. Opponents criticized the bill as benefitting the wealthy at the expense of lower-income wage earners and unfairly favoring corporate interests. Republicans who voted against the bill tended to be from states with higher rates of state and local taxation who felt that repeal of the state and local tax deduction in the House bill would result in double taxation and tax hikes for their constituents. While more than a dozen provisions caught the attention of most nonprofits (see the Comparison of the House and Senate Tax Bills below), three in particular stood out: politicizing the 501(c)(3) community, depressing charitable giving by more than $13 billion yearly, and the resulting cuts to domestic spending that will follow; all are discussed below, after the Senate update.

Late Thursday night, November 16, the Senate Finance Committee completed a volatile week of debate over the competing Senate version of tax reform that, in the view of Democratic Senators, was “a moving target.” The initial summary of Chairman Hatch’s draft bill (called the Chairman’s mark) was released on November 9, but then significantly changed on Tuesday, November 14 after the Committee had debated the draft for two days. Most controversial of the changes in the Chairman’s modified mark is a provision to effectively repeal the individual mandate in the Affordable Care Act (ACA or “Obamacare”). The Congressional Budget Office projects that the change would save the Treasury $338 billion in the first 10 years, but also cause 13 million Americans to lose their health insurance and drive up some insurance premiums by an average of ten percent per year.

The version of the bill approved by the Committee also lowers tax rates for individuals, but only temporarily: nearly all of the new tax code provisions relating to individuals, including rate cuts, the increased standard deduction, repeal of the alternative minimum tax, and other provisions would expire in 2025. The measures that pay for tax cuts, including repeal of the deduction for state and local taxes, would also disappear after 2025. In contrast, the bill would make business tax cuts permanent. See the Comparison of the House and Senate Tax Bills below. Given the great diversity of nonprofit missions, the provisions spread across hundreds of pages in the two tax reform bills would impact different nonprofits in different ways. That said, three issues would touch the work of almost all nonprofits:

Politicizing the 501(c)(3) Community by Weakening the Johnson Amendment

The House bill contains language (at Section 5201) that would effectively erase most of the protections in the Johnson Amendment that have existed since 1954. (See www.GiveVoice.org for more details.) Efforts to remove that language in the House Committee were unsuccessful. During the House floor debate, Representative Ron Kind (D-WI) stated that the issue in the bill “that scares me the most is the repeal of the so-called Johnson Amendment.” The new language would politicize the 501(c)(3) community by allowing charitable nonprofits, houses of worship, and foundations to engage in partisan politicking for or against candidates if such action is “in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose,” and it incurs no more than “de minimis” incremental expenses in doing so. Kind emphasized that the vast majority of religious denominations, faith leaders, and charitable organizations have written “to every member of Congress, telling us ‘Don’t do this.’”

Representative Kind also spoke to the issue of dark money in politics, stating that the change in the Johnson Amendment “could be a backdoor attempt for a lot of political contributors now to get tax-exempt contributions to these organizations for direct partisan political campaigns.” He pointed to the estimate from the Joint Committee on Taxation that the provision would cost the U.S. Treasury more than $2 billion, which the National Council of Nonprofits explained last week would amount to between $6 billion and $8 billion (depending on each donor’s tax rate) in charitable donations to newly politicized-churches and charitable nonprofits.

The Senate bill does not contain any such language, although it could be inserted either through amendments on the Senate floor or through a conference committee.

What You Can Do: Call your Senators and tweet your Senators to tell them not to politicize charitable nonprofits, houses of worship, and foundations, and to insist that the final tax reform bill does not touch the Johnson Amendment. If you get a chance, let your Representatives know that Section 5201 of the House bill is an outrageous affront to the nonprofit community and must be deleted from the final tax reform bill. And if you haven’t done so already, sign onto the Community Letter in Support of Nonpartisanship and join more than 5,500 charitable nonprofits, foundations, and other organizations in support of retaining current law. See who has already signed the letter from your state.

Losing Tens of Billions of Dollars in Charitable Giving – Every Year

Another major concern with both tax bills is the adverse impact on giving to the work of charitable nonprofits. Neither the House nor the Senate version provides any relief for the projected loss of billions of dollars yearly in charitable giving that would result from nearly doubling the standard deduction. In a news release, the National Council of Nonprofits explained that as a result of the higher standard deduction, “nonprofits will also have to deal with huge reductions in resources as the House bill denies 95 percent of Americans the ability to take charitable deductions, resulting in a devastating loss of more than $13 billion in giving each and every year.” (This week, the Tax Policy Center recalculated the reduction in giving to be as high as $20 billion a year.) To prevent the significant losses in donations and the resulting reduction of services in communities, many advocates for nonprofits and foundations had called on Congress to enable all Americans to receive a tax incentive for giving back to their communities by making it universally available – a universal deduction.

Senators Stabenow (D-MI) and Wyden (D-OR) filed an amendment at the beginning of the Senate Finance Committee markup of the legislation that would create a universal deduction with minor limitations. (Stabenow-Wyden Amendment #9, p. 179 of Master List of Amendments.) That bill was debated in the Committee on November 16, but failed on a party-line vote, as were all other Democratic amendments.

There is, however, bipartisan recognition in both chambers that the tax bill creates a serious problem for charitable giving. Last month Representative Mark Walker (R-NC) introduced the Universal Charitable Giving Act (H.R. 3988), a bill that would create an above-the-line deduction for charitable donations made by people who do not itemize. Charitable donations could be deducted up to one-third of the value of the standard deduction, which would be $4,000/individual and $8,000/couple if the standard deduction were to be nearly doubled, as currently planned in the House and Senate bills. This week, Senator James Lankford (R-OK) introduced the Senate version of the Universal Charitable Giving Act, (S. 2123). Because there now is bipartisan recognition of the problem, nonprofit and foundation advocates are hopeful that one of the universal deduction proposals, or a modified version, will be considered when the tax bill reaches the Senate floor, currently scheduled for the week after Thanksgiving.

What You Can Do: Call your Senators and tweet your Senators to tell them to add a Universal Deduction for charitable giving to the tax reform bill during the floor debate. They need to know: The tax bill as written would reduce giving to the work of charitable nonprofits by more than $13 billion every year and limit the charitable deduction to only the wealthiest tax payers. As Senator James Lankford (R-OK) wrote this month, “All Americans should be offered the same incentive and tax benefit to give for what they believe in, not just the wealthy.”

Severe Cuts to Domestic Spending

Many nonprofits, as well as state and local governments, have expressed grave concern that both the House and Senate bills would add at least $1.5 trillion to the nation’s deficit. As explained in this statement:

“The National Council of Nonprofits also opposes the House bill because of the increased inequities and far-reaching suffering for the American people that would occur due to deep cuts in domestic spending as a result of the $1.5 trillion more that the House bill would add to the deficit. Cutting taxes to the point of an additional $1.5 trillion shortfall simply doesn’t make sense when the needs in our communities are so great. The massive spending cuts at all levels of government will impose enormous, but unrealistic pressures on charitable nonprofits and foundations to fill the growing gaps.”

Neither nonprofits nor foundations have enough resources to subsidize government that much when people in need – and indeed, in greater need after severe spending cuts – turn even more to nonprofits for assistance.

What You Can Do: Let your state and local government officials, and their associations such as the municipal league, know of your opposition to the impact of the tax bill on the federal deficit and the likely cuts that will be felt by all parties, including charitable nonprofits. This can lead to coalition building and advancing mutually beneficial solutions. Also, share your concerns with local news media and give them real-life stories of what cuts will mean in your community. Stay connected with your state association of nonprofits to learn and share ideas for helping all nonprofits advance their missions.

Legislative Procedure and Timing

The House-passed bill will be sent to the Senate and serve as the legislation that the Senate takes up for debate scheduled for the week after Thanksgiving. Senate Finance Committee Chairman Hatch (R-UT) or his designee will likely offer a manager’s amendment that replaces the House version with the legislation approved by the Finance Committee on November 16. Because the bill will be brought to the Senate floor under the budget reconciliation process, filibusters will not be permitted and the debate will be limited to a designated number of hours.

House Speaker Ryan has stated repeatedly that the House and Senate will take their separate bills to a conference committee formed for the purpose of resolving the difference in the measures. If that occurs, the separate chambers would be called on to vote on the new version of the bill. There is speculation that the process will not be so transparent, and that Republican leaders in the coming days will seek to negotiate an agreement that changes the Senate bill that would go to the Senate floor for debate and voting during the week of November 27. Under this approach, the House would take up and enact the Senate-passed bill without amendments. Either way, Republican leaders in the House, Senate, and White House want to enact something before Christmas.

Comparing the House and Senate Tax Bills

The attached comparison chart has been updated to reflect the latest changes to the House and Senate bills. Highlights include: Each bill adds to the federal deficit by $1.5 trillion over 10 years by lowering individual and corporate tax rates, and nearly doubling the standard deduction while repealing most deductions and exemptions. Both bills would immediately double the exemptions under the estate tax to exclude estates valued at less than $11 million for an individual and $22 million for couples; the House bill goes further and completely repeals the estate tax after 2024. The House and Senate both turn to the nonprofit community for new revenue, proposing to impose excise taxes on some nonprofit college and university endowments as well as on salaries of higher-paid employees of nonprofits. Significantly, unlike the House version, the Senate bill does not currently include language weakening the Johnson Amendment, streamlining the private foundation excise tax, nor a provision eliminating private activity bonds upon which many nonprofits rely for capital financing. The Senate bill does include several new provisions that could be problematic for charitable nonprofits, including expanded unrelated business income taxes (UBIT) and rules on intermediate sanctions. See the National Council of Nonprofits’ House-Senate Comparison Chart.

11/13/17, Update Re: House/Senate Tax Reform Bills

The Senate version of the tax reform bill was made public late on Thursday; it’s as bad for charitable giving as the House bill. Unless changes are made in the next few days, giving to the work of charitable nonprofits could drop by up to $13.1 billion in contributions annually, under the Senate tax reform proposal. In West Virginia, we are extremely concerned that at a time when our state is still recovering from a decreased level of charitable giving (since the Great Recession of 2009), a change in the current form of itemized charitable giving would set us back even further. Learn more about the House and Senate versions in this comparison chart.

Please contact your Senators and/or their Chiefs of Staff, asking them to weigh in NOW with Chairman Hatch and expert pressure for a charitable giving incentive for taxpayers who don’t itemize on their tax forms.

The Senate tax bill would nearly double the standard deduction and, as a result, shrink down to five percent the number of taxpayers who itemize their charitable deductions. That would substantially shrink charitable giving too. Ninety-five percent of taxpayers would receive no tax benefit for giving back to their communities. A solution is to allow all Americans, including those who take the standard deduction, to take a deduction for their charitable donations.

The Senate Finance Committee starts considering the tax bill today, Monday, November 13, beginning at 3:00 pm EASTERN. The Committee Chairman needs to hear from his Senate colleagues that preserving charitable giving is very important to them.

TAKE ACTION
Please take two minutes today to call our U.S. Senators and deliver this simple message:

“The Senate tax bill will cause millions of Americans to cut back on their donations to the work of charitable organizations in our communities. I’m calling to ask our Senator to tell Finance Committee Chairman Hatch that it’s essential that he add a Universal deduction for charitable giving to the Senate tax bill to enable all Americans to get a tax benefit from giving back to the work of nonprofits in their communities. Thank you!”

How to Make the Call: Simply call the Capitol switchboard (202-22-3121) and follow the automated instructions to get to our Senators’ offices. You can get the names and telephone numbers of our Senators by going here for this list of Senators.

Send a Tweet: Find our Senators’ Twitter handles and send this message to her/him. (Be sure to start with a period before the Senator’s handle):

.Senator’s Twitter Handle Ask Chairman Hatch to add Universal Deduction for charitable giving for all American taxpayers to #taxreform!

Background:
Federal tax law currently encourages individuals to give to charitable organizations whose missions they support by providing an itemized deduction. Policymakers in Washington are focusing on how to reduce the federal budget deficit through spending cuts, entitlement reforms, and changes to the tax code. The President, Senators, Representatives, bi-partisan commissions, and think tanks have all put forward plans to address these issues, and many propose changing the charitable giving incentive in one way or another. No one knows the true impact that any of these proposals will have on the ability of charitable nonprofits to raise the resources needed to provide the programs and services that fulfill their missions. It is imperative that Congress make no changes to the charitable deduction that threaten the ability of nonprofit organizations to serve those most in need and to continue to strengthen our communities.

Many of your nonprofit colleagues from around the country took part in the “100 Years of Giving DC Fly-In” to show policymakers in Washington the impact of giving that supports work for their constituents in every community and the broad-based support for federal policies that enable charitable nonprofits to advance their missions in communities across the country. Read on for more information on how you can join these colleagues in supporting keeping the Charitable Giving Incentives the way they are.

What You Can Do
Changes to the charitable giving incentive remain a threat as part of comprehensive tax reform. Help protect the charitable giving incentive that supports the work of nonprofits in our communities now and in the future by sharing your story here and contacting your Senators and Representatives to tell them how the giving incentive translates into impact in your community. As always, we will continue to provide you with the latest information on this important topic. You can learn more by visiting the links below.

Federal Charitable Giving Incentive, National Council of Nonprofits
How Trump’s Tax Plan Could Kill the Charitable Deduction, Town & Country