Letter to the Incoming Tax Committee Chairmen:
Enact Policies to Build Stronger Nonprofits and Stronger Communities
Today, the National Council of Nonprofits sent a letter to the incoming chairs of the congressional tax-writing committees identifying a slate of policy recommendations designed “to promote stronger nonprofits and stronger communities.” When the 116th Congress convenes in January, Representative Richard Neal (D-MA) is expected to be the new Chair of the House Ways and Means Committee; Senator Chuck Grassley (R-IA) has decided to once again be Chair of the Senate Finance Committee. The letter congratulates the presumptive chairs for “assuming the lead in revising tax policies that work fairly for all Americans” and for pledging to pursue bipartisan solutions. Among the recommendations listed in the letter are preserving the longstanding Johnson Amendment, repealing new taxes on tax-exempt entities, expanding charitable giving incentives, and improving oversight of the IRS. We invite readers to read the letter and share examples of how the recommendations, if pursued, would positively affect your missions and to identify additional policy priorities that your organization is promoting. Send us your feedback.
Lame Duck Session
What’s Going to Happen? Nobody Knows
The lame duck session of Congress commences in earnest this week. Lawmakers face a long list of must-pass bills, but have only 10 legislative days to resolve their disagreements on several spending bills or face a partial government shutdown. While five of the necessary 12 spending bills are already law, Representatives and Senators must hash out differences in seven appropriations bills by December 7. Those differences include numerous controversial amendments, known as “riders,” that were attached to the spending bills, such as the anti-Johnson Amendment language. Major topics yet to be resolved include whether to: give the President the funding he wants for a southern border wall; provide additional support to areas of the country devastated by hurricanes and wildfires; make major (or even just minor) changes to the new tax law; and approve important time-sensitive legislation like the Farm Bill that funds nutrition and other programs. As is often the case, Congress put off the tough decisions until the last weeks of the year, and policymakers appear to be no closer to answers than they were six months ago. Their options are few: a) make the hard policy choices and pass legislation that deals with those issues; b) pass a short-term spending bill, known as a continuing resolution, that would maintain current funding levels for a certain amount of time into 2019, but allow no new money for the 2020 census and disaster relief; or c) suffer a partial government shutdown to force decisions in favor of the other two options.
- Natural Disaster Tax Relief: Individuals and businesses providing relief to victims of Hurricane Florence, the wildfires in California, and other recent natural disasters would receive some tax relief under a new bill (S.3648) introduced by Senator Burr (R-NC). One provision would suspend limits on charitable contributions to disaster relief efforts for taxpayers who itemize deductions on their federal taxes, meaning that individuals could donate and deduct up to their full adjusted gross income for the 2018 tax year. Another provision in the bill would grant tax credits to help for-profit businesses retain their employees, a measure that, as currently written, would not apply to nonprofit employers.
- Charitable Giving Trends: Households earning more than $1 million per year increased their charitable donations by approximately 20 percent in the 20 years from 1995 to 2015, according to a new report from the Institute for Policy Studies. Concurrently, however, giving by households earning less than $1 million annually declined precipitously over the same period, a troubling development for community-based nonprofits that rely on small donations to address local needs. The report recommends a universal charitable deduction to rectify disparities between giving among low- and middle-income families and high-income earners.
Public Comment Deadlines Looming
Individuals concerned about the missions of nonprofits throughout the country are encouraged to take advantage of the opportunity to submit public comments on three significant regulatory proposals that affect nonprofit finances and programs.
- Taxing Nonprofit Business Activities: The public has until December 3 to provide input on the U.S. Treasury and IRS Request for Comments on proposed interim and transition rules for interpreting what constitutes a “separate” “trade or business” under the new federal tax law. When identifying unrelated business taxable income, nonprofits may no longer combine gains and losses from all unrelated business activities; instead, they must breakdown expenses and revenues based on each undefined “trade or business.” The federal government proposes that nonprofits group their outside business interests according to the six-digit coding system known as the North American Industry Classification System (NAICS). Charitable nonprofits are encouraged to identify how the proposal would affect their accounting and tax structures and submit comments on whether the proposed regulations would clarify or further confuse these calculations. Learn more about the issue.
- Public Charge Proposed Rules: In late September, the U.S. Department of Homeland Security issued a proposed new “public charge” rule intended to disqualify more applicants from receiving temporary or permanent residency status in this country. The proposal would require immigration officials to give greater weight to applicants’ medical history, income levels, and dependency on public assistance in determining whether to grant lawful immigration status. Many charitable nonprofits have expressed concern that the proposed regulation would discourage non-citizens from securing the public services they or their children need, and instead seek assistance from nonprofits or go without. Such a policy likely would cause disparate treatment of immigrant families who are at or near the federal poverty level. To date, more than 80,000 individuals have submitted comments expressing their view on the proposed rule. The deadline to submit public comments is December 10.
- Improving Standardized Grants Data Elements: The federal Office of Management and Budget (OMB) has developed data standards for grants management reporting that are now open for public comment. Among other things, the intent of standardized data elements is to ensure that grant recipients and government agencies spend less time on administrative compliance and more on performing work that delivers results. But, to ensure the intent becomes reality, the Results-Oriented Accountability for Grants Team at OMB is asking nonprofits to provide detailed feedback, including comments, concerns, and specific user stories to identify and understand needed revisions before the data elements are finalized. Comments can be made until January 15, 2019 at the Federal Grants Management Data Standards Comment Site.
Check out these tips on submitting effective public comments.
State Spending Trends Analyzed
State spending surpassed $2 trillion in 2018 due in part to federal policy changes, including the new federal tax law and increased federal spending, according to a new analysis by the National Association of State Budget Officers (NASBO). Fiscal Year 2018 saw $838 billion in state tax revenues, a more than 6 percent increase from last year, but some of these revenues were a result of early-filing by taxpayers in response to the federal tax law – a one-time bump. Also, federal funding to the states rose by 5.7 percent in fiscal 2018, much of which went to transportation, education, and the Medicaid program, which has grown to be the largest share of state budgets.
Expecting increased revenues from individual income taxes as a result of the federal tax changes, legislatures boosted state spending by an average of 4.6 percent during the past fiscal year. However, NASBO found that total public assistance, defined as spending on the Temporary Assistance for Needy Families (TANF) program and other cash assistance programs, increased by an estimated 0.7 percent in fiscal 2018, after declining by 2.1 percent in fiscal 2017. Public assistance represented 1.3 percent of total state expenditures in fiscal 2018. The report determined, “While the level of federal funding to states has fluctuated over the past several years, spending growth from states’ own funding sources has been more stable as the national economy has gradually improved and states’ revenues have slowly rebounded from the national recession.” The statement can be seen as a warning for future state budget debates as the Trump Administration is expected to promote severe federal spending cuts that, if enacted, would significantly reduce the flow of dollars to the states, and ultimately to nonprofits providing services on their behalf.
Donations to New York Government-Run Nonprofits Drop
Two charitable funds created after New York passed legislation as a workaround to the new federal $10,000 cap on state and local tax (SALT) deductions received significantly less revenues after the federal government proposed changing the rules for how such payments are treated under federal tax law. One of the funds, the state’s Charitable Gift Trust Fund, collected $57.2 million in September, but only $163,000 in October. The Legislature had passed SALT workarounds to enable residents to make donations to two state-run nonprofit organizations and receive a state tax credit against taxable income as well as claim a largely uncapped federal charitable deduction. U.S. Treasury and the Internal Revenue Service announced proposed rules in late August that would significantly limit the value of future charitable deductions connected to state tax credits. The comment period for that proposed rule has ended and it is unclear when the government will issue final regulations. New York has joined with Connecticut, Maryland, and New Jersey in a lawsuit against the federal government challenging the cap on SALT deductions.
States Continue to Implement Medicaid Work Requirements
For a second time, the Trump Administration has given Kentucky approval to require Medicaid recipients who are able-bodied adults to work, volunteer, attend job training, or be in school for at least 80 hours per month to remain eligible. Kentucky was the first state to receive approval and faced an almost immediate legal challenge that resulted in a federal court blocking implementation of the requirements. The court found that federal officials had not adequately considered how the requirements, including mandatory volunteerism, impacted the primary purpose of the program, which is to provide individuals with access to medical assistance. The Trump Administration responded by reopening Kentucky’s proposal for public comment rather than appealing the ruling. Last week, the U.S. Department of Health and Human Services announced it had determined the requirements under the plan are “likely to promote the objectives of Medicaid.” Plaintiffs in the lawsuit are expected to update their filing to the still-open court case and continue the litigation.
Twelve other states followed Kentucky’s approach and have either received or are awaiting approval for work and volunteer requirements for Medicaid. Arkansas has put in place work and mandatory volunteerism requirements, which have resulted in more than 12,000 residents losing coverage since June. Critics of the Arkansas program assert that in addition to imposing barriers to eligibility, the state government established an online-only reporting system for use in the state with the lowest internet access in the country, making it more difficult for individuals to demonstrate that they had complied with the mandate. An additional 6,000 Medicaid recipients are at risk to lose insurance next month.
Diversity Prevailed Among the Electorate and the Elected
As more 2018 election results continue to be certified, there is a clear winner nationwide: Diversity. More than 110 million voters showed up to elect their public leaders and they opted for more diverse representation at every level of government – from local councils to Congress. The result is that diverse representation is actually beginning to reflect the diversity of our nation’s electorate. Ordinary people across the country, whether by their own accord, encouraged by the more than 2,000 nonprofits and others who joined Nonprofit Vote to get people registered and to get out the vote, or other recruitment activities, decided to have their voices heard.
It’s still too early to determine some demographics of voter turnout, but young voters, aged 18-29, spiked in the wake of tragedies and get-out-the-vote efforts targeting millennials and Gen Z. Women provided a powerful voting bloc with their role in 2018 proving to be “more consequential than in any previous midterm election,” according to Susan J. Carroll, a senior scholar at Center for American Women and Politics. The Latinx populous represented 12.8 percent of all eligible voters, a new high. And of the Hispanics who voted, 27 percent voted for the first time in a midterm, which was the largest increase of all demographics.
Promoting Principles Over Influence
It is a simple concept: public policies should be based on fundamental principles and not on the influence of those seeking them. The principle is playing out in California as lawmakers, state regulators, and powerful interests debate the merits and extent of regulations governing crowdfunding operations.
For over a year, Californians have been discussing potential crowdfunding regulations. Multiple competing perspectives have come up in the debate, many of which are mutually exclusive. CalNonprofits has stepped up to the challenge and introduced its Principles for Responsible Crowdfunding to help get everyone on the same page.
The public, online fundraising campaigns known as “crowdfunding” have proved to be popular and convenient ways to generate attention to challenges and causes and to generate donations. Some online fundraising, however, has raised concerns about the easy access for scam artists purporting to be legitimate nonprofits, undisclosed fees, uncertainty about tax-deductibility, and slow fund disbursement to nonprofits, among many others. The crowdfunding industry has initiated legislation in California to clarify what is and is not legally permissible, and other states are likely to adopt a regulatory framework as the industry continues to evolve and proliferate.
The California state association of nonprofits states that the “Principles are meant to act as a guide for emerging legislation and as a call to crowdfunding platforms to act in a fair, public-spirited way.” They are designed from the nonprofit and public perspectives to define responsible and ethical practices that will help nonprofits, donors and the crowdfunding companies engage in these online activities in ways that are “productive and ensure consistency with long-established laws that strive to balance the interests of stakeholders.” The Principles include common-sense themes such as protecting “the integrity of the relationship between donors and nonprofits,” ensuring donors are informed about fees and the tax deductibility of gifts, and providing donors with alternatives when their donations cannot be delivered. Recognizing that the field is rapidly evolving, the Principles call for ongoing dialogue between the online companies, the nonprofit community, and appropriate charity regulators.
Crowdfunding is a cutting-edge industry, but the fundamentals of sound public policy still apply: start with principles grounded in fairness, ethical practices, and transparency. CalNonprofits’ Principles for Responsible Crowdfunding should serve as a guide for policymakers in the Golden State, and help set the standard as the rest of the states take their own look at this evolving field.
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