An Uncertain 100th Birthday for the Charitable Deduction
Tuesday, October 3, marks the 100th birthday of the federal tax deduction for charitable giving. It should be a day of celebration for all it’s done for the American people, making the United States the model of the world for personal philanthropy. The underlying policy – Congress shouldn’t tax money that people give away to help communities – remains as valid now as it was in 1917 shortly after Congress began taxing income.
But this day of celebration is marred by the uncertainty proposed in the tax reform framework, discussed in the next article, that the White House and congressional leaders released last week. Throughout this birthday week, we encourage all who are committed to the work of charitable nonprofits to reflect on the value of the charitable deduction to missions, communities, and society as a whole. Let Congress know that tax reform is the time to expand charitable giving incentives, as through a non-itemizer or universal deduction,
rather than a time to shrink giving, as would occur if last week’s framework for tax reform were enacted without improvements.
Federal Tax Reform Process Commences
Administration and Republican congressional leaders’ long-awaited, “Unified Framework for Fixing Our Broken Tax Code,” released last week, starts the tax reform process that has been promised since January. The new nine-page framework lays out their agreements on some top-level issues in tax reform. Their plan calls for compressing the seven current tax brackets into three – 12%, 25%, and 35%, and giving the tax committees flexibility to add a fourth rate on the wealthiest taxpayers “to ensure that the reformed tax code is at least as progressive as the existing tax
code and does not shift the tax burden from high-income to lower- and middle-income taxpayers.” As expected, the proposal, if enacted, would nearly double the standard deduction to $12,000/individual and $24,000/married couple (up from $6,300/individual; $12,600/couple), while repealing personal exemptions of $4,050 per taxpayer, spouse, and dependants.
The framework calls for repealing the estate tax, the alternative minimum tax, and most itemized deductions, specifically targeting the deduction for state and local taxes. It asserts a goal of keeping the tax deductions for charitable donations and mortgage interest, but experts have determined that the framework actually would reduce the value of both, because the number of people eligible to take advantage of the tax incentives would drop to only five percent of taxpayers (down from more than 30 percent of taxpayers). The tax committees will be “encouraged to retain tax incentives for higher education, retirement
The National Council of Nonprofits released a Statement on Potential Consequences for the Work of Nonprofits highlighting the framework’s potential adverse effects on the ability of charitable nonprofits to advance their missions. The statement makes the case: “the impacts on nonprofits of doubling the standard deduction and its resulting reduction in charitable giving, repealing the estate tax, making other changes that could disrupt service delivery, and greatly expanding the deficit require further consideration. It could well be that the people who benefit from the framework’s
proposed tax cuts may see unacceptable reductions in their quality of life and survivability due to a resulting limit on the ability of nonprofits to serve. This must be avoided.”
FY2018 Budget Resolutions Advancing This Week
The House and the Senate Budget Committees are expected to take action this week on the budget resolution for the 2018 fiscal year that started on October 1. The annual budget resolution sets spending levels and authorizes a budget reconciliation process that prevents filibusters on budget matters. The House reportedly will vote Thursday, October 5, on the House budget resolution that was approved in committee before the August recess. Among other things, the House version calls for more than $200 billion in mandatory spending cuts. The conservative House Freedom Caucus has indicated that it will support the
resolution despite previously demanding to see specifics on tax reform. Last week, the Chairman of the Senate Budget Committee released the outline of his budget resolution that is scheduled to be marked up in Committee this week. The draft makes room for $1.5 trillion in deficit spending for tax cuts under reconciliation instructions, but does not call for spending cuts in mandatory programs and appears to adhere to previously agreed to spending limits under the Budget Control Act. See summary and draft resolution.
Healthcare Inaction and Action
Last week, Republican leadership in the Senate opted not to bring to a vote the Graham-Cassidy proposal, the last-ditch effort to repeal and replace parts of the Affordable Care Act (ACA or Obamacare). A narrow healthcare reform bill to stabilize individual health insurance markets is now being pushed by the Senate Health, Education, Labor and Pensions Committee Chairman Lamar Alexander (R-TN) and Ranking Member Patty Murray (D-WA) and could become the basis for small, but significant healthcare
reforms in the coming weeks. Separately, Congress allowed the Children's Health Insurance Program (CHIP) to expire September 30, although the immediate impact on children’s healthcare is unclear. While some assert that states have sufficient funds for the remainder of the calendar year, giving lawmakers time to renew the program, the Utah Division of Medicaid and Health Financing sent a letter last month warning that it would have to close its program if Congress did not renew funding. (See analysis of when states are expected to run out of CHIP funding.) The Senate is working on bipartisan legislation to extend CHIP for another five years. A House committee reportedly will take up CHIP funding this week, as well as consider money for community health centers and legislation governing other programs such as graduate medical education. The CHIP program provides wellness exams, immunizations, doctors visits, prescriptions and other forms of health
care for nine million children of low-income families.
- Student Loan Confrontation: The federal Perkins student loan program expired on September 30, and its renewal as a free-standing program is in doubt. Senator Lamar Alexander (R-TN), Chairman of the Senate education committee, blocked a temporary extension of the program, stating that his goal is “to move on to a simplified federal student aid program, that has only one federal loan for students, one federal grant for students and one work-study program for students,” as opposed to numerous, sometimes overlapping programs. In the House, a bipartisan bill to reauthorize the Perkins loan program for two years has the support of 228 Representatives, who recently asked leadership for a vote on the House floor. The needs-based Perkins loan program provided $1.2 billion in funds to 528,000 students in the 2014-15 school year.
- Overtime Rulemaking: The public comment period for responding to the Labor Department’s Request for Information (RFI) closed on September 25, providing the Department ample input for determining whether and how to update the regulations governing overtime pay under the federal Fair Labor Standards Act. Business associations, like the Partnership to Protect Workplace Opportunity, proposed limiting any increase in the salary threshold to about $32,000, while Attorneys General from nine states stressed the need to retain the higher salary level of $47,000 proposed in regulations from the Obama Administration but blocked by a federal judge. More than 150 comments were submitted from organizations representing charitable nonprofits, including the Alliance for Strong Families and Communities, the League of American Orchestras, and the National Council of Jewish Women. The National Council of Nonprofits submitted comments recommending: (1) that DOL NOT carve out a separate, sub-minimum salary level for nonprofits; and (2) that DOL create a reopener process so that nonprofits with government grants and contract can re-coup the costs of any change in federal law. The comments submitted by the Advocacy Office of the Small Business
Administration reinforce the views of nonprofits.
- #MissionMonday: Hundreds of nonprofits and their supporters participated in #MissionMonday on September 25, a day dedicated to online advocacy in support of nonprofit nonpartisanship and the Johnson Amendment. The campaign officially opened with a “Thunderclap,” simultaneous tweets from hundreds of individuals with a social reach of nearly 770,000. Participants tweeted and retweeted messages such as “The divisiveness of partisan politics has no place in #nonprofits or houses of worship,"
“Caring for one another is a human issue, not a partisan issue,” and “The public should be able to trust that donations go to missions, not politicians.”
The First Monday in October
The U.S. Supreme Court term begins today with a slate of cases that affect nonprofits, state and local governments, and civil society. Among the questions presented in upcoming cases are the following: Is there a constitutional limit on partisan gerrymandering? (Whitford v. Gill, analysis) Can businesses (including nonprofits) refuse service to gay couples? (Masterpiece Cakeshop v. Colorado Civil Rights Commission) At what point can a state remove people from its voter rolls? (Husted v. A. Philip Randolph Institute) Last week, the Court announced that oral argument has been postponed on another significant case – the constitutionality of President Trump’s restrictions on travelers from majority Muslim countries – to give the parties time to opine on whether a
decision was still necessary given that the administration had issued new travel rules (Trump v. Hawaii).
The Costs of Exempting Big Business from Property, Other Taxes
“Next time your local city council or state legislature cries, ‘No resources,’ you might want to consider giving these economic development deals in your own community a closer look.” That’s the advice of Steve Dubb in a recent Nonprofit Quarterly article investigating the many tax breaks that cities and states give to big businesses that promise to create new jobs, but that often fall far short of promised goals. The Foxconn deal in Wisconsin, $3 billion in forgone taxes
to the state in exchange for a factory to employ 13,000 workers, is only the most recent example. Five corporations, including automakers Volkswagen and Nissan, in Tennessee received over $2.1 billion in state tax incentives over the past decade, according to a series of reports in the Chattanooga Times-Free Press. Washington State committed $8.7 billion in tax abatements over 16 years to keep Boeing in the state, only to see the company lay off 12,000 workers this spring. According to an analysis five years ago in the New York Times, tax incentives and waived taxes amount to an $80 billion cost annually. Nonprofit Quarterly writer Dubb proposes that nonprofits insist that policymakers balance the equities: when weighing the value of these tax incentives, arguably for employment and economic growth in the area, they must be compared to the opportunity cost, namely the best use of the public funds - job growth, other economic development strategies, and other uses for the public funds.
Officials Challenging Nonprofit Hospital Charity Care
Charitable hospitals are being challenged in Washington State for withholding charity care for low-income patients. State law requires that hospitals provide free or discounted care, “charity care,” for patients below, at, or near the federal poverty level. The Attorney General has filed two lawsuits in the past two months alleging faulty charity care, one stemming from language barriers of low-income patients. The second law suit alleges that nonprofit hospitals have been pressuring patients for upfront payments and failing to provide notice or screen for eligibility of charity care. According
to the second complaint, the Capital Medical Center only permitted charity care for patients with urgent medical issues rather than all low-income patients, withheld financial assistance information, refused appointments, and required advance financial information, in violation of state law.
A recent op-ed by Senator Grassley (R-IA) asserts that this is a trend by nonprofit hospitals across the country. The Chairman of the U.S. Senate Judiciary Committee complains of hospitals garnishing wages, using collection agencies, and withholding services for low-income patients unable to pay high health care costs. The Senator calls out hospitals for failing to require that their payment assistance programs are “clear to everyone who walks through the door” and that tax exemption is a “compact” between the hospitals and federal, state, and local governments that “forgo billions of dollars in
Oregon Supreme Court Upholds Portland Arts Tax
The voter-approved “arts tax,” a levy of $35 per person in Portland, Oregon to fund arts and music education expansion in local schools, is constitutional under state law, the Oregon Supreme Court unanimously ruled last month. The ruling comes from a lawsuit filed by a retired attorney claiming the tax violated a state constitutional provision prohibiting flat-rate per-person “head taxes.” A Portland Commissioner called the decision “a big win” saying, “Thanks to the
ruling … over 30,000 Portland children will continue to have arts education in school.” Despite the ruling, the program has fallen short of expectations, according to a recent report, due to the city’s inability to collect the tax from a quarter of residents who owe it, and from an unreasonably low cap on administrative costs (five percent) that was written into the law the voters passed in 2012.
No, that title is not a typo. Despite this being called an “off-year” for elections, in fact hundreds of elections have already been held in 2017 and hundreds more are taking place between now and December. So, what’s a nonpartisan nonprofit to do about it? Plenty, if you follow the activities of the nonprofit associations in New Jersey, North Carolina, and Virginia.
In New Jersey, voters on November 7 will elect a new General Assembly (80 seats) and Senate (40 seats), as well as decide the hotly contested gubernatorial race to replace term-limited Governor Chris Christie. The Center for Non-Profits, the state association in the Garden State, is using the elections to raise awareness of nonprofit staff and board members about the candidates and educating the aspirants to public office about the economic and social impact of nonprofits. This week, the Center is asking each of the hundreds of candidates for the Legislature and state-wide offices to complete a four-question
questionnaire designed to identify priorities of the politicians, as well as gauge their engagement and understanding of the work of charitable organizations in their communities. The unedited responses to the questionnaires will be posted on the Center’s website and promoted widely so that all voters can become better informed.
In the Tar Heel State, the North Carolina Center for Nonprofits is concerned that voter turnout is typically extremely low for municipal elections, especially when there are not federal or state elections also taking place. The Center is encouraging nonprofits to remind their staff, boards, volunteers, and those they serve about the importance of voting in these off-year elections. Several cities in North Carolina - including Asheville, Durham, Fayetteville, Greensboro, Hickory, High Point, and Raleigh - will hold municipal elections on Tuesday, October 10. In other parts of the state, municipal
elections will be held on Tuesday, November 7. The nonprofit association reminds its members that election-day registration is not permitted in North Carolina and gives them action steps to take so they are registered in advance of the upcoming elections.
Finally, the Commonwealth of Virginia will greet a new Governor in 2018, with voters deciding on Election Day between Lt. Gov. Ralph Northam (D) and former Republican National Committee Chairman Ed Gillespie (R). The Center for Nonprofit Advancement and the Northern Virginia Idea Exchange (NOVIE) conducted two public forums in September with the gubernatorial candidates to give nonprofits and the candidates the opportunity to ask questions and explain positions on a wide variety of topics. Both events were well attended. Other statewide offices, all legislative seats, and
school board positions will be filled as well.
Each of the activities discussed above scrupulously adhered to the federal tax-law requirement that charitable nonprofits not endorse or support candidates for public office (Johnson Amendment). And each is sure to generate profound advocacy gains for all who participate. This is confirmed by one of the attendees of the Virginia candidate forums discussed above. Asked about his experience at the forums, Shannon Steene, executive director of a homeless shelter, said this: “As a nonprofit professional involved in the planning and implementation of the forums, it was good to hear both campaigns address similar topics and how
they propose dealing with the issues, if elected. The conversation fostered greater understanding of how each candidate looks at key issues that we nonprofits see up close and personal on a regular basis. While there are policy differences on specific issues, I heard themes of partnership and collaboration between government and [nonprofits] from both campaigns. That was heartening.”