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>> Top Reads: House Signs Off On Tax Bill That Hurts Charities
Congress resumed its tax reform efforts in both the House and Senate this week. In the upper chamber, the Senate Finance Committee held a four-day markup of the Tax Cuts and Jobs Act, and advanced the bill on a party-line vote of 14-12 to now be considered by the full Senate. In the House, members passed their version of the bill on Thursday, with a vote of 227-205. See below for details on both bills.
What’s the Same?
Both the Senate and House bills have some of the same provisions:
- Doubled standard deduction and preservation of the charitable deduction
- Increases AGI limits for the charitable deduction for cash gifts from 50 percent to 60 percent. (Senate sunset after 12/31/2025)
- Elimination of the Pease limitation. (Senate sunset after 12/31/2025)
- A 1.4 percent excise tax on investment income of private colleges and universities, and organizations formally related to the institution, with assets valued of at least $250,000 per full-time student.
- Doubled estate tax and generation-skipping tax exemption to $10 million. (Senate sunset after 12/31/2025)
- A 20 percent excise tax on executive compensation over $1 million at tax-exempt organizations.
And What’s Different?
There are also some key differences. The House version also includes:
- Streamlined private foundation excise tax to 1.4 percent.
- Requirement that donor-advised fund sponsoring organizations disclose inactive fund policies, as well as average amount of grants made from their DAFs.
- Estate tax and generation-skipping tax repeal after six years.
- Repeal of the Johnson Amendment, effectively allowing all 501(c)(3) organizations to engage in political speech in the ordinary course of the organization’s business. (Sunset after five years)
What Comes Next?
Now, the Senate Finance Committee will have to write legislative text based on the provisions that passed on Thursday. The Senate is expected to bring the bill to the floor for a vote the week of November 27, and thereafter the two chambers will have to come to an agreement before the final bill can be sent to the President’s desk. There are a lot of differences between the Senate and House versions, so we expect a lot of change and compromise in the negotiation process.
During the debate in the Senate Finance Committee, Senators Stabenow (D-MI) and Wyden (D-OR) offered an amendment that would create an above-the-line charitable deduction for non-itemizers with an AGI cap of 60 percent and a phase-out for high-income taxpayers similar to the Pease limitation. After Republicans argued that they are maintaining the charitable deduction in tax reform, and claimed that you can only create this policy if you decide not to double the standard deduction, the provision failed on a party-line vote of 14 nays to 12 years.
Although both were listed with the original amendments, Senator Thune (R-SD) did not offer the CHARITY Act as an amendment or the extended carryforward rule. The CHARITY Act would streamline the PF excise tax to 1 percent, expand the IRA charitable rollover to include distributions to donor-advised funds, and declare a sense of the Senate that the scope and value of the charitable deduction should not be diminished in comprehensive tax reform, among other provisions. The extended carryforward rule would make the charitable carryforward window 15 years instead of the 5 year window under current law.
New research from the Tax Policy Center (TPC) tells us charitable giving will be affected by the House tax reform bill, and it’s mostly what we already knew. TPC estimates that H.R. 1 could reduce charitable giving by between $12 billion and $20 billion in 2018. And while TPC has yet to publish research on the Senate version, it is likely safe to assume the findings would be similar.
This research is remarkably consistent with a study released earlier this year from the Indiana University (IU) Lilly Family School of Philanthropy that found the proposals considered in the Republican tax reform plan – such as expanding the standard deduction – could reduce charitable giving by as much as $13 billion. The drop in giving comes as a result of reducing the number of those who itemize to just 5 percent of Americans, which the Joint Committee on Taxation (JCT) confirmed last week would lead to a reduction of $95 billion being claimed as charitable deductions.
The evidence is now stacking up – the unintended consequence of current tax reform policies under consideration is a reduction in charitable giving.
As you know, charities have rallied behind a universal charitable deduction as a way to protect against the consequences of an expanded standard deduction. Fortunately, there are options for lawmakers to consider. Just this week on Tuesday, November 14, Senator James Lankford (R-OK) introduced the Senate companion to the Universal Charitable Giving Act, which was originally introduced by Rep. Mark Walker (R-NC) in the House in October. As you may recall, the bill would extend an above-the-line charitable deduction to non-itemizers that would be capped at one-third of the standard deduction. So, although nothing was included in the Senate tax package that would ensure more Americans have access to a tax benefit for charitable giving, Sen. Lankford’s universal charitable a deduction bill can still be considered by the full Senate, and perhaps even included in their final tax reform bill.
But it won’t happen without your help.
Momentum for tax reform is at a level not seen in 30 years and in its current iteration, charities will lose billions of dollars in charitable donations. Contact your senators and urge them to protect charitable giving in the Senate tax reform bill. Explain how doubling of the standard deduction will eliminate the charitable deduction for 95 percent of Americans and result in a loss of $12-20 billion in charitable giving. Tell your senator that the way to avoid this devastating consequence is to expand the charitable deduction to all Americans.
Even though the House has already passed its version of tax reform, contact your representative and relay the same information. The House and Senate versions of tax reform still need to be reconciled and your elected officials need to understand what the current proposals will do to charitable giving.
Keep in mind that your elected officials will be in their home states and districts this upcoming Thanksgiving week. More than ever before, now is the time for you to tell them how tax reform will affect your charities and community.
At the ACR Summit for Leaders in March, we presented a Roadmap for Action – a 12-month plan to engage with lawmakers and your community.
We then hosted a webinar in April for those who may have missed the Summit.
November’s action item is to write a letter to the editor of your local news outlet, which is especially timely considering all of the tax reform happenings this month. You can find all the resources you need here.
We also want to share in your successes! October’s action item was to invite lawmakers to your organization. If you took a photo during their visit and you would like to share it with us, please email it to firstname.lastname@example.org. Some examples of how to share on social media can be found here.
It’s been a whirlwind week on taxes in Washington.
The House took up and passed its tax bill on Thursday. And the Senate sent a tax bill out of the Finance Committee on Thursday as well. We expect it to go to the floor the week after Thanksgiving.
So far it’s been a mixed bag for us.
Here are two examples: As of this writing, both the House and Senate raised the limits on how much taxpayers can give from 50 to 60 percent of their adjusted gross income. That’s good. In the not-so-good category, neither the House nor the Senate have, of this writing, embraced a universal charitable deduction to preserve the value of the charitable deduction.
But as Yogi Berra would say, it ain’t over till it’s over. As we mentioned, the Senate won’t go to the floor to debate its bill until the week of November 27 and following that, we expect (but don’t know for sure) that the House and Senate will convene to resolve their differences. Bottom line – we’ve got time to make this bill better.
Rest assured, we will give it our all.
- National: Tax Legislation Advances as Nonprofits Send Message About Harm to Giving
- National:Senate panel approves GOP tax plan
- National: House passes sweeping tax bill in huge victory for GOP
- National: House Signs Off On Tax Bill That Hurts Charities
- National: Senator Lankford Introduces Universal Charitable Giving Bill
- National: Grants to Charities Exceed $15 Billion as Total Assets Increase 9.7% to $85 Billion: 2017 Donor-Advised Fund Report
- Opinion: Concerns over tax reform: Larger standard deduction means less charitable giving
- Opinion: House GOP tax cut bill would devastate the arts
- Opinion: Editorial: A boost for local nonprofits
- Opinion: The House Tax Bill Could Be the End of Charities as We Know Them
- Local: Don’t let tax reform hurt nonprofits: Delaware Voice
- Local: IRA Charitable Rollover offers unique giving opportunity
- ACR Blog: Itemized Charitable Deductions Will Fall $95 Billion Under House Tax Reform Bill
- ACR Blog: The Evidence is Stacking Up: Current Tax Reform Bills Will Reduce Charitable Giving
Please feel free to email us at email@example.com if you have any questions, stories or topics you would like us to include in our newsletter.
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