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On Friday, December 9, the Senate passed a continuing resolution to fund the government through April 28, 2017, before leaving town for the remainder of the year. The 115th Congress will convene January 3 and is expected to hit the ground running with nominations and a new budget resolution. Both House Speaker Paul Ryan (R-WI) and Senate Majority Leader Mitch McConnell (R-KY) have indicated they want to pass a repeal of the Affordable Care Act and tax reform legislation through a budget tool known as reconciliation that only requires 51 votes in the Senate.
On Tuesday, December 13, Larry Kudlow, CNBC senior correspondent and informal advisor to President-elect Trump, said House Republican tax writers have played a major role in shaping the incoming Administration’s tax plans. The House Ways and Means Committee met Wednesday and Thursday this week to discuss their strategy for tax reform. As part of the discussions, lawmakers went through a list of tax expenditures to determine which deductions they would have a problem eliminating in a tax overhaul. According to Politico, a lobbyist briefed on the meeting said the charitable deduction was not brought up in the discussion.
On Monday, December 5, Ways and Means member Rep. Tom Reed (R-NY) released a set of policy proposals, several of which he previously introduced, to tackle rising tuition costs, including one provision that would impose a mandatory financial aid payout on the largest college endowments. This payout proposal would require public and private universities with endowment funds exceeding $1 billion to spend 25 percent of their annual endowment income on financial aid or risk losing their tax-exempt status. Rep. Reed said he intends to introduce a bill including this payout proposal next Congress. While this proposal doesn’t directly threaten foundation endowments, we are aware it could raise broader skepticism around all endowments, and we will continue to follow this proposal and others alike.
On Friday, December 9, the American Enterprise Institute released an estimate that President-elect Donald Trump’s cap on itemized deductions would affect 329,000 taxpayers and could eliminate $17.6 billion in annual charitable giving. AEI said “While the lower marginal rates will be good for growth, the itemized deduction cap threatens to have a very negative effect on charitable giving.”
On Wednesday, December 14, the Charitable Giving Coalition, of which ACR is a member, sent a letter to the President-elect urging him to maintain the full scope and value of the charitable deduction. The CGC also sent the letter to Ways and Means Republicans ahead of their strategy retreat.
On Sunday, December 11, Chris Cillizza wrote in the Washington Post that the unconventional campaign Donald Trump ran will likely be reflected in unconventional approaches to the presidency. He writes that Trump’s current transition is already showing “a total disregard for the established methods and the rules governing those methods,” and that using old methods to measure success or failure to assess Trump will not suffice.
Here’s a fascinating graph on what has happened to charitable giving over the last 60 years or so. Many thanks to our friend and ACR Advisory Council member Robert Sharpe for sharing this with us.
We’re certain the large ebbs and flows in this graph have no doubt been the subject of a doctoral thesis or two. However, there is one wild swing that we’d like to draw your attention to and that is what happened in 1986.
As you can see, in 1986 giving increased by a whopping 17 percent – the largest increase in giving in the 60 years-plus that are captured on this graph. Giving then dropped precipitously in 1987.
So, what does the graph mean and why is it so relevant now?
The likelihood of sweeping tax reform next year has risen dramatically with the election of a Republican President along with Republican control of both the House and Senate. It would be the first comprehensive tax reform bill since 1986 under President Ronald Reagan. That bill was signed into law in October of 1986 and under that bill, the top individual tax rate dropped from 50 percent to 28 percent over 1987 and 1988 – effectively devaluing the charitable deduction. You can make a pretty good case that individual tax rates absolutely make a difference in at least the timing and overall level of charitable giving as shown by the 1986 experience.
Tax reform is very much on the table this year. If that reform is indeed enacted, and if individual rates drop dramatically and/or if the charitable deduction is capped in some way, we would expect another 1986-like spike in giving at the end of 2017 followed by a dramatic downturn in giving the following year. In fact, it is a trend that may have already started.
- National: Will Trump’s Tax Plan Hurt Philanthropy?
- National: Trump’s tax plan could be bad news for the housing market, charitable giving, and local governments
- National: Why More Investors Are Donating Stock to Charity
- National: The Largest U.S. Charities For 2016
- National: Why Big Donors Are Fast-Tracking Charitable Gifts To Year-End 2016
- National: Four Ways Charitable Giving Could Change With a Tax Overhaul
- National: Trump Tax Plan Could Negatively Impact Giving
- National: When Donor-Advised Funds Exert Political Judgment over Grants
- Local: Following the money in political and philanthropic giving
- Local: Mass. attorney general retools charity report after flaws highlighted
- Opinion: A New ‘Benevolent Empire’ to Cure Social Maladies
- Opinion: Donor-advised funds offer a way to give to charity, reap tax advantages
- Opinion: Preparing for Shifts in Philanthropic Planning During the Trump Era
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