Yesterday, House Republicans issued their tax reform bill, H.R. 1, the Tax Cuts and Jobs Act. As was anticipated, the tax reform bill doubles the standard deduction, reducing the number of itemizers from one-third of Americans to about five percent. According to IRS data, this would remove the tax incentive for an estimated $95 billion of annual charitable giving and could reduce giving by as much as $13 billion. Charities have rallied behind a universal charitable deduction as a solution to protect against the unintended consequences of an expanded standard deduction. However, the bill released this week does not expand the charitable deduction. You can read our statement on the bill here.
As you recall, Rep. Mark Walker (R-NC) released a bill in early October that would extend a charitable deduction to non-itemizers. Following the tax reform bill release, Rep. Walker said his biggest concern is the potential changes to the charitable deductions for households who will no longer have an incentive to itemize. He said it’s “something we’re still working on.”
With the bill now released, we are actively urging Ways and Means members to consider amending the bill to add in a universal charitable deduction, when the committee begins its markup of the bill next week. At a minimum, members ought to consider Rep. Walker’s bill, which is a step in the right direction and rightly acknowledges the effectiveness of the charitable deduction in encouraging taxpayers to support their communities. To date, it’s the only bill that expands the charitable deduction to all Americans.
In addition to the charitable deduction, here are the provisions related to our sector:
- Increases the AGI limitation on cash contributions to public charities and certain private foundations to 60 percent from its current 50 percent.
- Streamlines the PF excise tax to 1.4 percent.
- Requires DAF sponsoring orgs to disclose their policies for inactive funds, as well as the average amount of grants made from their DAFs.
- Repeals the Pease Limitation.
- Impose a 1.4 percent excise tax on net investment income of private colleges and universities whose assets are valued of at least $100,000 per full-time student. (Page 81)
- Doubles the Estate Tax and generation-skipping tax exemption to $10 million, and repeals both after six years.
- Adjusts the charitable mileage rate for inflation.
- Repeals the exception that relieves a taxpayer from providing contemporaneous written acknowledgement by the donee organization for contributions of $250 or more when the donee organization files a return with the required information.
- Permits churches to make statements relating to political campaigns in ordinary course of religious services and activities, with de minimus expenses.
We have also expressed our concerns about the proposal to streamline the private foundation (PF) excise tax at 1.4 percent, which will be a tax increase on many foundations and ultimately take money away from charities. You may recall that we have championed legislation from Reps. Erik Paulsen (R-MN) and Danny Davis (D-IL) that would streamline the PF excise tax at 1 percent, which the House has already passed on several occasions.
The Ways and Means Committee is expected to hold a markup next week, where members of the committee can offer amendments to the bill before it is considered by the full House of Representatives. We also anticipate that the Senate will release its version of tax reform in the near future, perhaps as early as next week.
After years of waiting and debating, the tax reform process is now in high gear and there will be a lot of movement in the coming weeks. We will keep you informed as the process moves along and continue working with legislators to protect charitable giving.