Pace Quickens on Tax Reform: What’s Happening Now and Next
December 6, 2017
The Senate voted today to begin negotiating with the House on a comprehensive tax reform package that would take effect in 2018 and will impact giving by donors for years to come. Orchestras in every state have weighed in to ask Congress to protect charitable giving incentives.
Despite overwhelming evidence that the House and Senate reform proposals will lead to significant declines in giving, neither chamber of Congress has adopted the universal charitable deduction sought by nonprofit organizations nationwide. As select members of the House and Senate prepare to meet to sort out the overall differences in their two bills, an expert from Indiana University's School of Philanthropy reports that changes to individual, corporate, and estate tax combined will result in a decline of $20 billion per year in giving to charitable organizations.
Since the universal charitable deduction was not adopted in either the House or Senate bill, its chances of being added during the conference of the bills have dwindled as the small group tasked with crafting a final bill will focus attention on settling their differences over the next week. Here are key highlights of provisions related to charitable giving:
Where the House and Senate are the same:
No charitable deduction for non-itemizers: While the charitable deduction is preserved for those who itemize their tax returns, the number of itemizers is expected to fall dramatically as the standard deduction is nearly doubled under the House and Senate proposals to simplify tax returns. Charitable giving has been projected to decline by up to $13 billion per year if only 5% of taxpayers itemize their returns, and nonprofits are deeply concerned about the long-term impact if a habit of giving is no longer cultivated among taxpayers early in their earning years.
Limitations loosened on charitable deductions for itemizers: For taxpayers who would continue to itemize returns, both the House and Senate bills raise the limit on the deductible amount from 50% of adjusted gross income to 60%, potentially incentivizing more giving by those who had reached the 50% cap. Both bills also would also repeal the "Pease limitation," which currently reduces total itemized deductions for high-income tax payers.
Where House and Senate bills differ:
Estate Tax: The House bill would double current exemptions and phase out the estate tax over six years, prompting concerns about the potential impact on incentives for charitable giving. The Senate bill would preserve the estate tax, but double the amount exempted from taxation.
Protecting the non-partisanship of 501(c)(3)s: What started as an effort to allow more partisan speech by churches has now been expanded to impact all 501(c)(3) organizations, as the House tax bill would allow nonprofits supported by tax-deductible contributions to endorse candidates for office, removing the protection in law (called the Johnson Amendment) that prevents nonprofits from being pressured into partisan activity. The broad charitable, religious, and philanthropic communities have come out in strong opposition to the House language because it will remove the protection organizations enjoy from demands from candidates and donors to support partisan campaigns. The Senate bill does not include such a provision.
on their communications to the Hill. Please keep it up!
Beyond issues related to charitable giving, a number of other provisions will impact nonprofit arts organizations, as outlined in the League's overview of tax policy proposals. Please stay tuned as the League keeps you posted on next steps.