Nonprofits Under Threat: What’s in the House Tax Bill and How You Can Help

Content adapted from National Council of Nonprofits, of which MANP is a member.

Yes, this is a blog post about tax. But WAIT! Don't click away just yet. The federal tax bill being discussed right now is of incredible importance, and we need you!

Yesterday (5/12), the House Ways and Means Committee released its draft tax legislation, which is the core of a major tax reconciliation package that Republicans hope to enact by summer.

Key Advocacy Points      Analysis      Safety Net Impact      What's Next

Key Advocacy Messages

National Council of Nonprofits is calling on nonprofits to contact their Republican Representatives and Senators to urge them to protect the nonprofit sector in the tax reconciliation process. 

• THANK Senator Collins for her support of the Charitable Act, and urge her to SUPPORT and EXPAND tax incentives for charitable giving. Congress should include in the tax reconciliation bill the Charitable Act, introduced by Sen. Lankford (R-OK) and Rep. Moore (R-UT), to create a non-itemizer tax incentive for charitable donations to nonprofit organizations. See NCN’s one-pager on the Charitable Act and factsheet on the nonprofit sector for more information.
  
  
• OPPOSE granting unprecedented authority to the Executive Branch to revoke nonprofit status from organizations without due process. This provision allows Administrations to target charitable nonprofits based on ideological grounds.
  
  
• OPPOSE new or expanded taxes on nonprofit organizations, including private foundations. These proposals divert scarce resources away from essential services, undermine the ability of charitable nonprofit organizations to meet needs in their communities, and put greater strain on government. See NCN’s one-pager on protecting nonprofits in tax reconciliation for more information.

Contact Maine's Delegation

Analysis: The Impact on Nonprofits

Below find early analysis of the draft tax legislation. 

The good

NCN and MANP support the inclusion of a non-itemizer charitable deduction for taxpayers. Thanks to effective advocacy from nonprofit organizations across the nation and the leadership of Sen. Lankford (R-OK) and Rep. Moore (R-UT), the tax bill creates a non-itemizer tax deduction up to $150 for individuals and $300 for married couples, regardless of whether the tax filers claim an itemized deduction. This proposal is based on the Charitable Act, a bill introduced by Sen. Lankford and Rep. Moore and endorsed by NCN. As written, the tax bill provides a tax. 

To help bolster the work done in communities by nonprofit organizations, Congressional leaders should ensure this provision remains in the tax reconciliation package and expand it to further incentivize charitable giving. Please thank Senator Collins for her support of this policy issue!

The bad

The tax bill includes several harmful provisions opposed by NCN and MANP that would, if enacted, threaten the entire nonprofit sector:

• Giving unprecedented authority to the Administration to revoke nonprofit status from certain organizations without due process. This draft provision is similar to what was introduced in H.R. 9495, a bill opposed by NCN and MANP. If enacted, Section 112209 would allow the Secretary of the U.S. Department of the Treasury to unilaterally revoke nonprofit status from “terrorist supporting organizations,” without requiring the Secretary to share full evidence or ensure due process. While nonprofit organizations unequivocally oppose terrorism in all forms, any such enforcement action must still be grounded in transparency, evidence, and the rule of law.  This authority could enable any Administration of any political party to target charitable organizations based on ideological grounds. Nonprofit organizations wrongfully designated would be irreparably harmed, losing the trust of donors and the communities they serve.
  
  
• Increasing taxes on private foundations as a “pay for” for significant tax cuts to corporations and high-income individuals. Section 112022 would, if enacted, significantly reduce financial resources available to nonprofit organizations to advance their missions. Foundations with assets of more than $5 billion will see tax rates of 10%, those with assets between $250 million to $5 billion would see tax rates of 5%, those with assets between $50 million and $250 million would pay 2.8%, and those with assets under $50 million would pay the existing 1.4% tax. At a time when nonprofit organizations face enormous financial challenges, the tax bill would make it even harder for organizations to serve their communities and fill the gaps unmet by local, state, and federal governments.

The tax bill also includes other provisions impacting nonprofits. The draft bill:

• Increases and expands Unrelated Business Income Tax (UBIT) to include any qualified transportation fringe benefit, such as transit benefits or parking benefits, for charitable organizations. The provision also carves out an exception for church-affiliated organizations. In essence, this provision applies an income tax on an expense. This provision was previously passed in the 2017 and subsequently repealed due to the confusing nature of applying an income tax on an expense and difficulty of quantifying the expense of certain benefits such as the cost of a parking spot already owned by a charitable organization.
• Increases taxes on large private university endowments. The Administration has continued to target universities on ideological grounds, and the President has threatened to rescind nonprofit status for Harvard University and other institutes of higher education.
  
  
• Creates a 1-percent floor for charitable contributions made by corporations and allows such corporations to carry forward the tax benefit for 5 years.
  
  
• Extends excise tax on executive compensation for all employees earning $1 million or more.
  
  
• Temporarily increases the standard deduction. This will further limit the number of tax filers who itemize their deductions, including for donations to charitable organizations.

The Impact on Safety Net Programs

The Energy and Commerce Committee released a draft version of its portions of the tax reconciliation bill over the weekend. Taken together with the draft bill from the Ways and Means Committee, the tax reconciliation package could deeply cut or restrict access to several critical safety net programs, impacting many of the same people served by nonprofit organizations.

These draft bills:

• Cut funding for Medicaid by requiring states to create and expand mandatory work and volunteering requirements to more households as a condition for receiving health benefits. NCN supports programs to promote volunteer activities, but we oppose proposals to condition government-provided benefits on “mandatory volunteerism,” which increases costs, burdens, and liabilities on nonprofit organizations. The proposal also creates a new federal cost-sharing requirement for adult beneficiaries who earn just above the federal poverty limit, and it prevents states from increasing taxes on healthcare providers to help cover costs. The bill reduces the federal cost-share for Medicaid expansion states, if the state allows undocumented immigrants to receive healthcare, even if the state uses their own funds for this purpose. Together, these changes could result in 13.7 million more people without health insurance, according to the Congressional Budget Office (CBO).
  
  
• Exclude certain low-income families from accessing the expanded Child Tax Credit. While the proposal increases the maximum value of the tax credit from $2,000 to $2,500, 17 million children in low-income households would be denied the expanded benefit because their families do not enough high enough incomes. By making mixed-status immigrant households ineligible, 4.5 million U.S. citizen children would no longer have access to this resource.
  
  
• Cut the Supplemental Nutrition Assistance Program (SNAP). The House Agriculture Committee bill is expected to shift costs to states, limit future increases to benefits to keep up with higher food costs, and impose stricter work requirements.

The Energy and Commerce draft bill also rescinds many investments made by Congress under the Inflation Reduction Act. NCN filed litigation – and secured a preliminary injunction – in federal court to prevent the Administration from unlawfully withholding these investments and resources.

What's Next?

The draft tax bill is slated for a vote in the Ways and Means Committee on Tuesday, May 13. If the bill passes, it will be quickly combined with legislation approved by other committees, before heading the House floor for a vote as soon as the week of May 19.

By using the reconciliation process, Republicans can enact the tax bill with only a simple majority vote in the House and Senate. Republicans, however, have a very narrow majority in the House; Republican leaders cannot afford to lose more than three votes in order to pass the package as written.

If Republican leadership garners enough support to pass the bill, it will then head to the Senate for a vote on the floor before going to the President’s desk for a signature. Leaders have indicated the 4th of July as a goal deadline for passage.

Based on a number of factors, NCN believes our best opportunity to change the tax bill is in the Senate.