28 March 2019

Charitable Issues Discussed During Hearing on 2017 Tax Law

The House Ways and Means Committee held a hearing this week entitled “The 2017 Tax Law and Who It Left Behind.” While charitable issues were not expected to be the main focus of the hearing, we were in attendance to monitor the discussion, along with many of our partners in the sector – and just as we expected, charitable giving was mentioned on several occasions.

The first mention of charitable giving was by one of the witnesses, Nancy Abramowitz, who is a professor of law and director of the Janet R. Spragens Federal Tax Clinic at American University’s Washington College of Law. She mentioned charitable giving in her opening statement.

“We think that other provisions in the law may affect people indirectly, such as reduced charitable giving, the SALT deduction, as well as opportunity zone legislation, all of which may have negative impact on services intended or previously provided to the poor,” said Abramowitz.

Witnesses are also permitted to submit written testimony to the committee that is often more detailed than what they offer in their opening statements. Abramowitz’s submitted testimony further expounds on her concern over the way charitable giving could change as a result of the expanded standard deduction.

“The TCJA has increased the standard deduction in an amount that is likely to significantly affect charitable deductions claimed. To the extent that tax benefits are no longer available for some givers, the question of whether those individuals will continue to give is as yet unanswered. If giving to the charitable sector is reduced, the further question is what types of charities are affected and whether there is an adverse impact on certain charities, including those furnishing services to low income individuals,” wrote Abramowitz in her testimony.

Later in the hearing, Rep. Mike Thompson (D-CA) brought up the issue of charities being charged the unrelated business income tax (UBIT) on fringe benefits they provide employees.

“This includes churches and other nonprofits who may for the first time be forced to pay taxes due to a change in the tax bill to the treatment of some types of fringe benefits they provide their employees,” said Thompson.

It was not the only time the UBIT issue was brought up as Rep. Tom Suozzi (D-NY) also expressed alarm over the provision.

“Another group that’s been left behind are charities and no-for-profits because as hard it is to imagine, as part of this tax bill, there’s a new tax on charities and not-for-profits. If you are a religious institution…and you give parking permits to you employees, or transportation allowances, they have to pay taxes on it now,” Suozzi said.

The most direct discussion of charitable giving was initiated by Rep. Dwight Evans (D-PA), who asked Jason Oh, professor of law at the University of California Los Angeles School of Law, to explain the potential consequences of the new tax law on charitable giving. You can watch the video of the exchange here.

“One of the consequences of expanding the standard deduction is that fewer households are going to be itemizing, which means they are not going to see any tax deduction from the donations they are making. What we do know from some of the economic research out there is that the charitable deduction is a deduction that really does work. It encourages giving,” Oh responded.

During Rep. Evans’ questioning, Abramowitz also expressed the concern she included in her submitted testimony over how the concentration of charitable donations shifting more to coming from higher-income Americans could change the dynamic of giving overall.

“I think time will tell as to whether there is a change in the charitable sector as to where the dollars are being directed.”

This hearing was not specifically about charitable giving, but the number of times it was brought up certainly confirms that lawmakers are concerned about the 2017 tax bill’s impact on the sector. We suspect the Ways and Means Committee will further examine that impact, perhaps in a hearing more specific to the impact of the tax law on the charitable sector.

To stay up to date on what’s happening on Capitol Hill and in Washington that affects the charitable sector, follow ACR on Twitter @ACReform for our #HillScoop and #SectorScoop.