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Federal Tax Reform Update

by Jennifer Gray
The following content from the National Council of Nonprofits has been reprinted with permission. 

Two Councils Say: Vote House Bill Down, Start Over

The National Council of Nonprofit and the Council on Foundations issued a joint statement declaring the House tax reform bill fatally flawed and calling for its defeat when the House of Representatives votes later this week. The two organizations, which together represent tens of thousands of charitable nonprofit and philanthropic organizations, object to numerous provisions in the bill that, if enacted, would make it much harder for charitable nonprofits and foundations to serve their communities.

The statement highlights the doubling of the standard deduction and adverse unintended consequence in severely reducing charitable giving to work in communities. Next, the two organizations express fervent opposition to a provision in the bill, Section 5201, that would politicize the 501(c)(3) community by weakening the decades-old Johnson Amendment. Going further, Tim Delaney of the Council on Nonprofits stated, “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 – and unrealistic – pressures on charitable nonprofits and foundations to fill the growing gaps.” The statement concludes: “The House needs to vote down this bill and start over. We hope the Senate will do better.”

Tax Reform Accelerating on Two Tracks

It’s full speed ahead for Republican tax reform bills this week as the House plans to pass the Tax Cuts & Jobs Act (H.R. 1) by Thursday as the Senate expects to complete committee action on its version of the bill before the end of the week. The House bill was approved on a party-line basis by the Ways and Means Committee on November 9. The legislation is expected to come to the House floor with a “closed rule,” meaning that no amendments will be allowed and Representatives will only be able to vote for or against the Committee version of the bill.

In the Senate, Finance Committee deliberation is set to begin Monday, November 13, on a bill release in summary form on November 9. As in the House, significant changes to the bill in the Finance Committee are not likely. Committee members (listed here) and staff were informed late last week that amendments would be rejected unless they were cost neutral or contained offsetting revenue raisers, and were accompanied by a cost estimate from the Joint Committee on Taxation.

Those restrictions have not dissuaded Senators from drafting more than 300 amendments. Senator Stabenow (D-MI) and Ranking Member Wyden (D-OR) have prepared an amendment for Committee consideration that would create a universal deduction that would allow all Americans who take the standard deduction to also claim a deduction of up to 60 percent of their adjusted gross income (AGI). (See next article.)

Other amendments include one to incorporate the CHARITY Act, several to make the work and economic development tax credits permanent, and a proposal from Senator Roberts to permit charitable deductions from estates for donations to non-charitable nonprofits, including 501(c)(4) social welfare organizations, (c)(5) labor unions, and (c)(6) trade associations.

Once the Committee completes its work this week, the Senate version will go to the Senate floor under an expedited procedure known as “reconciliation” that limits debate and permits passage by a simple majority rather than the usual 60 votes needed to overcome a filibuster. It is expected that the full Senate will vote on the bill after the Thanksgiving holiday.

TAKE ACTION: Support Stabenow-Wyden Universal Deduction

The amendment that Senators Stabenow and Wyden plan to offer in the Finance Committee would grant an “above-the-line deduction,” meaning that taxpayers could deduct their charitable donations even if they take the standard deduction. Under the House and Senate bills, the charitable deduction would be unavailable for 95 percent of taxpayers. The Joint Committee on Taxation (JCT) estimates that itemized charitable deductions will drop by $95 billion in 2018. Not all of this would disappear; the change is estimated to shrink giving to the work of charitable nonprofits by $13 billion or more each year.

  • Call Senators King and Collins and urge them to encourage their colleagues on the Senate Finance Committee to support Stabenow-Wyden Amendment #9. Tell them “the amendment is needed to prevent tax reform from disqualifying 95 percent of taxpayers from receiving any tax benefits for giving back to their communities.” Call now: (202) 224-5344 (King) and (202)224-2523 (Collins) For more information about the universal deduction see this blog.

Comparing the House and Senate Tax Bills

With a few notable exceptions, both the House and Senate tax bills hew closely to the Tax Reform Framework negotiated by Republican congressional leaders and White House officials.

  • 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.
  • Neither bill includes a universal deduction to allow all Americans to receive a deduction for giving back to communities that is needed to overcome the adverse impact various proposed changes would have on charitable giving (but see above).
  • 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 farther and repeals the estate tax after 2024.
  • The drafts in 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 new unrelated business income taxes (UBIT) and rules on intermediate sanctions. See the National Council of Nonprofits’ House-Senate Comparison Chart.

Partisanship Provision Expanded in House Bill

At the last hour of the last day of House Ways and Means Committee consideration of the House tax bill, Chairman Brady offered a “manager’s amendment” that radically expanded the anti-Johnson Amendment provision, Section 5201, ensuring that every 501(c)(3) organization would lose the protection from demands by candidates for public office and their political operatives.

  • As now written, the bill would politicize the 501(c)(3) community by allowing charitable nonprofits, houses of worship, and foundations to engage in partisan electioneering for or against candidates, as long as doing so occurs “in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose,” and the organization incurs no more than “de minimis” incremental expenses.
  • The provision would be effective from 2019 through 2023.
  • The nonpartisan Joint Committee on Taxation (JCT) estimates that the provision would cost the federal government $2.1 billion over just six years because donors would divert their currently nondeductible political campaign donations to political churches and charitable nonprofits in order to claim charitable tax deductions.
  • The provision is vehemently opposed by the broad nonprofit community – charitable, religious, and philanthropic – plus state law enforcement officials. The National Council of Nonprofits issued a statement declaring full-throated opposition to the last-minute change to the bill that would weaken Johnson Amendment protections for all 501(c)(3) organizations, promising to “fight any provision to weaken the Johnson Amendment protections in the pulpits, food banks, and editorial pages; in town squares, public meetings, and everywhere people concerned about their communities come together.”
  • To learn more about the Johnson Amendment, go to this blog.

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