House Considers Tax Reform Next Week - What It Means for Orchestras, and What You Can Do Next

November 3, 2017

Congress is picking up the pace on a comprehensive tax reform package, as the first details were released yesterday by House Ways and Means Committee Chairman Kevin Brady (R-TX) with the introduction of HR 1, The Tax Cuts and Jobs Act. The broad package of corporate, individual, and nonprofit tax proposals would enact the most substantial changes to the U.S. tax code since 1986, and includes provisions that would impact charitable giving and nonprofit practice. Orchestras have been weighing in with Congress in the lead-up to tax reform, joining the broader nonprofit community in asking policy leaders to protect charitable giving incentives and to ensure that changes to rules for nonprofits will only help to increase their capacity to serve communities.
This bill's introduction is just one step to a complete tax reform package, which Congressional leaders hope to finalize before the end of 2017. Along the way, changes will be considered by the House Ways and Means Committee beginning on Monday, November 6, and the Senate is meanwhile crafting its own approach to a reform bill, with a draft expected in mid-November. Please continue to raise your voice and let your policymakers know that the decisions they make now will affect the strength and vitality of your orchestra's service to its community.
Here is how the House tax reform bill impacts several key issues:

Charitable Giving:
  • No charitable deduction for growing ranks of 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 proposal 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. In response to earlier proposals to increase the standard deduction, advocates have been seeking a "universal charitable deduction" available to non-itemizers. While the universal deduction was not included in the initial House bill, advocates are asking Congress to adopt this strategy to protect giving.
  • Deduction limits eased for itemizers: For those still itemizing their returns, the bill would increase the limit on charitable deductions for cash gifts from the current level of 50% of adjusted gross income to 60%, potentially incentivizing more giving by those who had reached the 50% cap. The bill also would repeal the "Pease limitation," which currently reduces total itemized deductions for high-income tax payers.
  • Estate Tax phased out: A hot-button issue throughout tax reform debates, the estate tax would be phased out over six years under the proposal, prompting concerns about the potential impact on incentives for charitable giving.
Nonprofit Administration:
  • UBIT: There is some good news as the House bill does not include previously-considered proposals that would have substantially altered Unrelated Business Income Tax (UBIT) calculations and subjected corporate sponsorships to new UBIT requirements. The bill does include a provision to tax certain fringe benefits offered to nonprofit employees, such as parking, transportation, or onsite gyms.
  • Executive compensation: A 20% excise tax would be applied for compensation exceeding $1,000,000 for an organization's five highest-compensated employees.
Arts-specific Policies:
  • Artist Fair Market Deduction omitted: The bill does not yet include a provision long-sought by arts advocates that would allow composers and other artists to take a fair market value deduction when contributing their works to charitable collecting institutions.
  • Musical works not treated as capital property: The bill eliminates a provision in current law that allows a taxpayer to treat the sale or exchange of a musical composition or a copyright for their own musical work as a capital gain or loss.
The League of American Orchestras is partnering with our colleagues in the broader nonprofit community to continue to analyze the full text of HR 1 (see this helpful big-picture summary from the National Council of Nonprofits). 

Speak Up For Your Orchestra
In meantime, please continue to weigh in with your elected officials! The League's online campaign center includes background and sample messages you can tailor as you speak up in the coming days and weeks, and will be updated as further developments unfold.