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>> Consider This: Tax Framework Released
>> Top Reads: Tax Plan Doubles Standard Deduction, Leaves Charitable Deduction In Place
On Tuesday, Senate Majority Leader Mitch McConnell (R-KY) conceded defeat on the most recent attempt at repealing and replacing the Affordable Care Act following the firm opposition from three Republican senators.
Republicans face a September 30 deadline to complete health care using floor procedures that could pass the bill with 50, not 60, senators, so their time has nearly run out. Some have suggested that health care could be rolled into the tax reform effort, but leading Republican senators oppose that idea. While they could continue the health care debate in the future, as of October 1, we expect the conversation to be about tax, not health care, reform.
On Wednesday, the White House, House Ways and Means Committee and Senate Finance Committee released a tax reform framework that will serve as the template from which the tax writing committees will develop legislation. The framework proposes nearly doubling the standard deduction, consolidating the current seven tax brackets into three (12%, 25% and 35%), eliminating most itemized deductions except the charitable giving and mortgage interest deductions, and repeal of the estate tax.
On the topic of the two deductions that are kept, the framework states: “These tax benefits help accomplish important goals that strengthen civil society, as opposed to dependence on government: homeownership and charitable giving.” For the past year, Ways and Means Chairman Kevin Brady (R-TX) has publicly expressed interest in encouraging more Americans to donate to charity and unlocking more charitable giving; however, the current framework would do the opposite. There was a disappointing lack of detail about how tax writers will address the drop in charitable giving that would occur by increasing the standard deduction and the resultant drop in taxpayers who itemize. You can see ACR’s statement on the framework here.
Following the release of the framework, President Trump delivered a speech on tax reform in Indiana on Wednesday. According to reports, he hopes to convince Senator Joe Donnelly (D-IN) to support tax reform, making it a bipartisan effort.
As of this writing, Republicans plan to pass a tax reform bill using a budget procedure which only requires a simple majority in the Senate. That requires passing a Fiscal Year (FY) 2018 budget though, and Republicans in Congress are having trouble coming to a consensus on the parameters for that budget. Next week, House Speaker Paul Ryan (R-WI) intends to bring a budget resolution to the House floor for a vote, and the Senate hopes to act soon thereafter. However, the budgets that pass the respective chambers are likely to be starkly different and will require negotiations before a firm agreement is made.
Last week, the Senate Finance Committee held a hearing on Business Tax Reform during which the panelists and senators discussed broad topics such as lowering the corporate tax rate to make America competitive on a global scale and how pass-through business income should be taxed. Charitable tax provisions were not discussed.
Chairman Hatch also announced that he will hold a hearing on International Tax Reform next week. We don’t expect any coverage of our topics, but these hearings do indicate that the Senate Finance Committee is tackling tax reform on the committee level rather than strictly through leadership.
On Thursday, the House and Senate passed the Disaster Tax Relief and Airport and Airway Extension Act, which includes temporarily lifting the current limits on the charitable deduction for disaster-related contributions between August 23 and December 31, 2017.
This is a move that has been done before, including after Hurricane Katrina. The Treasury Department estimated the lift of limits on all giving in 2005 spurred $11 billion in additional charitable giving that year.
You can view ACR’s statement here.
Additionally, The Philanthropy Roundtable recently asked some of its members to recommend charitable organizations that donors may find most helpful during the recovery following Hurricane Harvey. That list can be found here. The Roundtable has already requested recommendations for organizations serving those areas affected by Hurricanes Irma and Maria as well. We will update the above link when those recommendations have been gathered.
It has been a busy week on the tax front. On Wednesday, the Administration, along with House and Senate Republicans, released their “Unified Framework for Fixing Our Broken Tax Code.” The nine page document (actually more like five or six if you count the white space on most of the pages) was short on details. And the details that were there were long on tax reform “winners” but short on tax reform “losers.”
We were pleased to see that the charitable deduction was one of two itemized deductions (along with the deduction for mortgage interest) singled out in that document for retention and were pleased to see the document note that the deduction helps “strengthen civil society.” But as we all know, the devil is in the details, and retaining the deduction could be interpreted in a variety of ways. Will it be retained at the current level? Will it be adjusted to take into account the fact that doubling the standard deduction (a noble goal to be sure) will result in dramatically fewer itemizers and an accompanying drop in charitable giving?
We’ve been pressing the case for preserving – even expanding – the full value and scope of the charitable deduction with policymakers and we believe we are making progress, although we are disappointed that progress was not fully reflected in this week’s framework. With the seeming failure of the healthcare effort, Republicans are anxious to deliver a win on taxes. Expect accelerated action on the tax reform front in the coming weeks. We’ll be in the middle of that debate, making the case for charitable giving.
- National: Tax Plan Doubles Standard Deduction, Leaves Charitable Deduction In Place
- National:After triumphal rollout for tax reform, GOP faces the reality of delivering
- National: Giving Could Plunge $13 Billion Under Tax Plan, Nonprofit Leader Says
- National: GOP tax plan trashes the value of two popular tax breaks
- National: GOP Plan Would Cut Corporate and Individual Taxes, Repeal Estate Tax
- Opinion: The GOP’s tax reform proposal couldn’t be better
- Opinion: 6 Takeaways From The New GOP Tax Plan: First Off, It’s Not A Plan
- Opinion: The ‘doubled standard deduction’ in the GOP tax plan is a lie
- Opinion: The promises and pitfalls of the GOP tax reform framework
- Local: Op-Ed: Individual Donors — The Engine That Drives American Charity
- ACR Blog: Discussing Philanthropic Freedom and The Givers
- ACR Blog: Donor Dad Wants to Stay Anonymous
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