>> Federal: Washington Roundup
>> Federal: Ways and Means Approves Charitable Bills
>> Federal: Charitable Proposals in Budget a ‘Mixed Bag’
>> Federal: Chairman Hatch Announces Working Groups and Timeline
>> Federal: ACR Summit
>> Consider This: Hot, Warm, and Cold
>> Top Reads: Obama Budget Again Calls for Limit to Charitable Deduction
The President unveiled his $4 trillion fiscal year (FY) 2016 budget on Monday. His proposal includes a series of new tax cuts aimed at low-to-middle income earners and government spending programs paid for with new taxes on upper-income earners, fees on big banks, and additional taxes on companies’ overseas revenues. According to Administration officials, the budget reduces the deficit by $1.8 trillion over the next 10 years and raises $640 billion in new revenue from capital gains tax increases and other tax changes.
On Wednesday, the House Ways and Means Committee marked up and approved a package of bills making permanent several expired tax provisions, including the IRA charitable rollover, the deduction for gifts of food inventory, and the deduction for conservation easements. The committee also approved legislation sponsored by Representatives Erik Paulsen (R-MN) and Danny Davis (D-IL) that would streamline the private foundation excise tax to one percent – a provision ACR has promoted for several years. House Majority Leader Kevin McCarthy (R-CA) indicated last week that the House could vote on all of these bills the week of February 9, but a final decision will not be made until next week. We are very pleased and will update you as the bill moves forward on the House floor.
The President’s budget contains four provisions that are of interest to ACR. Similar to previous budgets, the document caps all itemized deductions – including the charitable deduction – at 28 percent. The budget also resuscitates the Fair Share Tax (aka the Buffett Rule), imposing a minimum 30 percent tax on income above $1 million. The Fair Share Tax provides a credit against taxes owed for charitable donations, but limits that credit to 28 percent. New for FY2016 is a 28 percent capital gains tax for upper income earners (the current rate is 23.8 percent). However, the proposal does safeguard charitable donations by exempting appreciated property donated or bequeathed to charity from the tax.
The budget also simplifies the private foundation (PF) excise tax to a flat 1.35 percent.
ACR released a statement in response to the President’s budget, which notes the “charitable community is receiving mixed signals from the White House about charitable giving.” The statement also notes ACR “is encouraged by [the PF excise tax simplification] proposal, but strongly supports establishing a flat rate of one percent.” We provide more insight into these proposals below in this week’s Consider This section.
It is important to note that the President’s budget stands little chance of passage in a Republican-controlled Congress. Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways and Means Committee Chairman Paul Ryan (R-WI) both criticized the President’s budget for its tax increases and new spending. “For six years the President has pursued higher taxes and higher spending, and our economy has paid the price,” Ryan said in a statement. Hatch added that the document “shamelessly panders to the Democratic base and does nothing to put our nation back on a sound fiscal footing.”
Instead, the proposal should be viewed as the Democrats’ opening gambit for future tax reform discussions. As such, we take each provision seriously.
Last week, Senate Finance Committee Chairman Orrin Hatch (R-UT) told reporters he wants the Committee’s five bipartisan working groups to identify “key issues” as soon as March. He added that he does not expect any legislative text to be produced until later in the year. As you may recall, Hatch formed these groups in January to analyze current tax law and examine possible reform options within the group’s designated topic areas.
This Tuesday, Hatch announced the makeup of these working groups. We believe the individual income tax group and the business income tax group will have primary jurisdiction over ACR’s issues. Members of these groups are as follows:
Individual Income Tax
- Co-Chair Senator Chuck Grassley (R-IA)
- Co-Chair Senator Mike Enzi (R-WY)
- Mike Crapo (R-ID)
- John Cornyn (R-TX)
- Pat Toomey (R-PA)
- Co-Chair Senator Debbie Stabenow (D-MI)
- Charles Schumer (D-NY)
- Bill Nelson (D-FL)
- Robert Menendez (D-NJ)
- Michael Bennet (D-CO)
Business Income Tax:
- Co-Chair John Thune (R-SD)
- Pat Roberts (R-KS)
- Richard Burr (R-NC)
- Johnny Isakson (R-GA)
- Rob Portman (R-OH)
- Pat Toomey (R-PA)
- Dan Coats (R-IN)
- Co-Chair Benjamin Cardin (D-MD)
- Debbie Stabenow (D-MI)
- Tom Carper (D-DE)
- Bob Casey (D-PA)
- Mark Warner (D-VA)
- Robert Menendez (D-NJ)
- Bill Nelson (D-FL)
The release of the President’s budget proposal comes just as we are gearing up for our annual ACR Summit for Leaders on March 18. With congressional staffers once again speaking on one of the panels at the Summit, attendees are sure to get the latest news and insights from Capitol Hill. We invite you to join us.
To register for the ACR Summit as well as other events during Philanthropy Week in Washington, click here. Attendance is free.
The President sent his FY 2016 budget to Capitol Hill earlier this week. As we combed through the details, we felt a tinge of whiplash as the document ran hot, warm, and cold on charitable giving. Quite simply, we are confused.
The President wants to raise the capital gains rate. BUT, charitable giving is exempt from this provision. That is a full recognition from the Administration that charitable giving is unique.
At the same time, the budget calls for the “Buffett Rule” – the proposal that taxes incomes over $1 million with a 30 percent tax and a limited credit for charitable giving. This provision is at least a partial recognition that charitable giving is important and unique.
And finally, the budget calls for a cap of 28 percent on ALL tax deductions, including the charitable deduction. That is no recognition of the charitable deduction’s importance at all.
While we don’t expect these proposals to go anywhere in the near future, we will be watching and working to preserve the one deduction we view as first among equals in the tax code – the charitable deduction.
- National: Obama Budget Again Calls for Limit to Charitable Deduction
- National: Obama outlines his budget wish list
- National: Senate Democrats List US Tax Reform Principles
- National: House committee clears tax breaks
- National: Paul Ryan Takes on Tax Reform
- National: Nonprofit beat: Charities debate extending donation deadline
- National: Court Orders IRS to Release Computer-Readable Charity Tax Forms
- National: Republicans Try Again to Revive, Lock In Lapsed U.S. Tax Breaks
- National: Blackbaud’s Charitable Giving Report Shows Online Giving Continues to Outpace Traditional Giving as Donors Shift Channels
- Local: New “Endow Maryland” Tax Credit Promotes Charitable Giving for Local Communities
- Opinion: Boston College Center for Study of Wealth Will Close
- Opinion: The 2016 Federal Budget: What Nonprofits Should Know
- Opinion: Be wise when donating online to help
- Opinion: Obama Budget Proposal Revisits Tax Hikes At Top, Tackles ‘Middle Class Economics’
- ACR Blog: PF Excise Tax Bill Headed to House Floor
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