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>> Consider This: Implications of the SALT Cap
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On January 3, lawmakers returned to Washington to be sworn into the 116th Congress. Rep. Nancy Pelosi (D-CA) was then elected Speaker of the House, returning to the top spot eight years after giving up the gavel in 2011. The top item on Congress’ to-do list remains funding parts of the government where funding lapsed in mid-December. The partial government shutdown is now in its fifth week, and although the White House and lawmakers have held various meetings over the past several weeks, there has been little progress in negotiations to reopen federal agencies.
President Trump is still demanding $5.7 billion for a barrier at the southern border, and Democrats are not budging. House lawmakers have voted on various funding bills to reopen the government (without wall funding), but Senate Majority Leader Mitch McConnell (R-KY) said the Senate will not vote on a funding measure unless the President supports it. More recently, some Senate Republicans have been mulling a bipartisan deal, but nothing has been shared publicly.
Bottom line: At this time, it’s hard to see an end game that reopens the 25 percent of the government that is currently shuttered. What this means is that other agenda items, including leftover must-do fixes to the big tax bill, are pushed back.
Early this month, Senate Finance Chairman Chuck Grassley (R-IA) announced three new Republicans on the committee: Senators James Lankford (R-OK), Steve Daines (R-MT) and Todd Young (R-IN). Last month, Democrats selected Sens. Maggie Hassan (D-NH) and Catherine Cortez Masto (D-NV) to fill their open committee spots.
On January 9, Ways and Means Chairman Richard Neal (D-MA) announced the appointment of ten new Democratic members on the committee: Reps. Gwen Moore (D-WI), Dan Kildee (D-MI), Brendan Boyle (D-PA), Don Beyer (D-VA), Dwight Evans (D-PA), Brad Schneider (D-IL), Tom Suozzi (D-NY), Jimmy Panetta (D-CA), Stephanie Murphy (D-FL), and Steven Horsford (D-NV). Last week, Chairman Neal added Rep. Jimmy Gomez (D-CA) to the committee in an effort to expand Hispanic representation on the panel. Ways and Means Ranking Member Kevin Brady (R-TX) announced three additions to the committee last week as well: Reps. Jodey Arrington (R-TX), Drew Ferguson (R-GA) and Ron Estes (R-KS).
Bottom Line: The tax writing committees in both chambers have complete jurisdiction over our issues. Having 19 new tax writers means we’ll be spending a lot of time making friends and educating them on our priorities. Some we already know to be friendly to the sector, specifically Sen. Young (R-IN), Sen. Lankford (R-OK), and Rep. Kildee (D-MI). We look forward to finding more champions to add to that list.
Also last week, Ways and Means leadership announced their respective subcommittee chairs and ranking members. Of note, Reps. Mike Thompson (D-CA) and Adrian Smith (R-NE) were selected as chair and ranking member, respectively, of the Subcommittee on Select Revenue Measures.
Bottom Line: Formerly the Tax Policy Subcommittee, the Select Revenue Measures Subcommittee is expected to hold several hearings examining the 2017 tax bill and its outcomes/consequences, followed by the drafting of potential new tax legislation. We suspect charitable issues could come up during those discussions, so stay tuned.
Last month, Senate Finance Chairman Chuck Grassley (R-IA) outlined his oversight priorities for 2019 in a speech on the Senate floor, and on that list was to “Ensure the nonprofit sector is living up to the purpose of its tax-exempt status.” As you may recall, Grassley chaired the Finance Committee in the mid-2000s, and during his time at the helm he placed a lot of focus on the oversight of the tax-exempt sector. Given his renewed interest in the sector, it will be important for the sector to be proactive in working with the new chairman.
Early this month, Chairman Grassley announced Mark Warren as chief tax counsel of the committee. Mark most recently served as tax counsel to Senator John Thune (R-SD) and before that worked on the Ways and Means Committee where he worked on nonprofit issues. Mark was in Senator Thune’s office when he rolled out the CHARITY Act in 2017 and has an understanding of our sector, so we look forward to continuing to work with him at the committee.
On Thursday, Reps. Henry Cuellar (D-TX) and Chris Smith (R-NJ) introduced the Charitable Giving Tax Deduction Act, H.R. 651, which would move the charitable deduction above the line so all taxpayers can deduct their charitable donations. The legislation does not yet have other cosponsors.
The bill appears to be identical to legislation introduced by Reps. Cuellar and Smith last year, which was supported by ACR and many other organizations. The Charitable Giving Coalition, of which ACR is a member, plans to meet with staff in Reps. Cuellar’s and Smith’s offices to hear what their strategy is for moving the legislation through Congress and how the sector might fit into the mix.
Bottom line: The number of Americans giving to charity has been steadily decreasing for more than a decade, and there continues to be concern about the unintended consequences to charitable giving of increasing the standard deduction for federal taxpayers. This is the first bill in the 116th Congress that addresses the need to implement tax incentives that encourage more Americans to give to charity. We look forward to working with lawmakers this year to advance efforts to expand the charitable deduction.
In conjunction with Foundations on the Hill in March, ACR will hold our Leadership Breakfast (formerly the Summit for Leaders) on March 12, which will include the ever-popular congressional staff panel. Speakers will be announced in early March.
To register for the summit, click here.
You may recall the Roadmap for Action Calendar we put together for the 115th Congress – a 12-month action plan to engage with lawmakers in your community. We will release our 116th edition soon, so keep an eye out for that.
One of the most notable changes in the 2017 tax bill, and perhaps most controversial, was capping the state and local tax (SALT) deduction. The $10,000 cap inspired several states (notably NY, CA and CT) to get crafty and create faux charities for residents to pay their state and local taxes to and get a charitable deduction. In essence, these states converted a taxpayers state and local deduction into a charitable deduction, with the state as the “charity.”
Enter the Treasury Department. In order to snuff out these faux charitable donations, Treasury released broad proposed regulations that said if a donor gets a state credit for their charitable donation, they cannot also get a federal charitable deduction.
Unfortunately, the proposed regulations also damage a number of targeted state tax credits supporting giving to legitimate charities, such as those supporting school tuition scholarships. We urge you to take a moment to read ACR’s statement on those regulations.
Despite the shutdown, in late December Treasury came to the rescue to partially fix the unintended consequences of the regulations. Treasury issued rules that that would allow businesses to deduct these gifts to legitimate charities in cases where they’ll receive a state credit for it. The only difference is that they’ll be deducting the gift as a business expense instead of a charitable donation.
The even better news? There’s a cap on the charitable deduction for corporations, set at 10 percent, but there’s no cap on business expenses. So businesses can be as generous as they want without a cap on their deduction.
Unfortunately, individual taxpayers are still unable to deduct gifts they receive tax credits for. The next phase of guidance we hope to see is reinstating the deduction for them as well. Stay tuned.
- National – IRS provides safe harbors related to the SALT deduction
- National – Children’s hospitals brace for tax reform’s unintended consequence: fewer donors
- National – The IRS Shutdown of SALT Deduction Workarounds
- National – IRS to waive under-withholding penalties for some taxpayers after Trump tax changes
- National – Disruption Ahead: What to Know About Donor-Advised Funds in 2019
- Local – Local nonprofits face uncertain 2019
- Local – Long Island congressional leaders act to reinstate SALT deduction
- Opinion – The Effects of 2019 Tax-Policy Decisions Will Linger for Decades. It’s Time to Weigh In.
- Opinion – Commentary: A Troubling Reliance on Major Donors
- Opinion – We should allow all taxpayers to deduct charitable contributions
- Opinion – Commentary: Tough year ahead for nonprofits without business, legislative help
- Opinion – The GOP Tax Bill Got One Thing Right: Ending The Charitable Deduction
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