Take Advantage of the U.S. House Recess
The U.S. House of Representatives is in recess this week (October 16-20), and many Members of Congress are meeting with constituents in their districts. It’s not too late to call your Representative’s office and simply ask for a meeting, find out where he or she will be addressing public gatherings, or tell the staff how you feel about any of a number of issues affecting the ability of charitable nonprofits to serve their communities. Not sure of what to talk about? Here is an overview of major issues of concern for all 501(c)(3) organizations and some hot topics:
Indeed, given the increasing volume of time- and politically sensitive matters on Congress’ plate, it’s even more important to stand for your mission by sharing your views when you have access to your elected representatives so your voice is heard above the din of all the other issues (see first item in Federal Issues, below).
Not sure how to set up, prepare for, and conduct an in-district meeting? Check out this brief webinar, Meeting with Policymakers: (Back) Home Edition (18:48), that provides step-by-step instructions.
Administration Heaps More onto Congress’ Full Plate
President Trump issued two Executive Orders last week – one on Obamacare (see article below) and one on the Iran nuclear deal – that put pressure on Congress to take action on those two issues before the end of the year. Also, the Administration announced last month that it would end the Deferred Action for Childhood Arrivals program in six months and called on Congress to authorize an alternative approach. Those significant new opportunities or challenges, depending on one's perspectives on these issues, come on top of a very full legislative agenda for the fall. This agenda includes adopting a budget resolution, enacting appropriations bills before spending authority ends on December 8, as well as the highest priority of the majority party: passing comprehensive tax reform. Congress must also renew the expired Children’s Health Insurance Program before state resources are exhausted by the end of the year, and deal with three Congressional investigations into the extent and consequences of Russian interference in U.S. elections.
Non-Itemizer, Universal Deduction Bill Introduced
Legislation to create a charitable giving deduction for taxpayers who take the standard deduction and do not itemize on their federal income tax forms was introduced this month by Representative Mark Walker (R-NC). The bill, the Universal Charitable Giving Act (H.R. 3988), would allow taxpayers who take the standard deduction to also deduct charitable donations in an amount up to one-third of the amount of the standard deduction. Under current law, that would amount to a deduction of up to $2,100/individual and $4,200/couple. If Congress nearly doubles the standard deduction, as proposed in the unified tax reform framework released last month, then the non-itemizer deduction would rise to $4,000/individual and $8,000/couple. The challenge is that by increasing the standard deduction, the framework effectively shuts out 95 percent of Americans from this vital incentive to give to support the work of nonprofits because the share of taxpayers who itemize is expected to drop to only five percent. Experts calculate that the approach in the framework could result in a drop in giving by anywhere from $13 billion to $26 billion per year. The National Council of Nonprofits issued a statement saying that the legislation "takes an important step toward possibly resolving a significant problem that the framework creates,” while stressing that “it is too soon to determine whether the limit on charitable tax deductions included in the Universal Charitable Giving Act is properly calibrated to promote greater overall giving and whether alternative solutions should be considered.”
White House Takes Unilateral Actions on the Affordable Care Act
Last week, President Trump ordered several changes to the administration and enforcement of the Affordable Care Act (the ACA, or “Obamacare”) that could affect the cost and availability of health insurance for nonprofits, their employees, and the people they serve. On Thursday, the President issued an Executive Order directing federal agencies to begin making changes to healthcare regulations in the areas of (1) association health plans, (2) short-term, limited-duration insurance, and (3) expansion of the use of health reimbursement arrangements. On October 13, the Administration announced that the federal government will stop funding key subsidies that help low-income Americans afford their deductibles and co-pays. Eighteen state Attorneys General filed a lawsuit seeking a court order that the $7 billion in insurance subsidies must continue to be paid. Many healthcare experts have expressed concerns that these actions could destabilize health care markets, increasing health care costs for many individuals and organizations. The Administration’s actions also put in jeopardy bipartisan efforts to authorize and extend the subsidy payments for two years while granting greater flexibility to the states for adjusting some of the ACA mandates.
- Expanding Religious Discrimination: U.S. Attorney General Jeff Sessions published a broad memo instructing all federal departments and agencies on the “Principles of Religious Liberty.” The guidance says “religious organizations may choose to employ only persons whose beliefs and conduct are consistent with the organizations’ religious precepts,” a perspective that a gay rights advocate said “put a thumb on the scale” of justice in favor of those who want to use religious liberty arguments to discriminate. The memo outlined 20 principles based on the Justice Department’s interpretation of existing federal laws, specifically the 1993 Religious Freedom Restoration Act.
- Taxing Unrelated Business Income: The current unrelated business income tax (UBIT) imposed on charitable nonprofits could be modified to generate new revenue to pay for tax cuts in the tax reform process, according to Representative Pete Roskam (R-IL), Chairman of the House Ways and Means Subcommittee on Tax Policy. Roskam was speaking at a conference in Washington, DC hosted by The Hill newspaper. Changes to UBIT have been on the table at least since the release of former Ways and Means Chairman Dave Camp's tax reform plan. That proposal would have expanded the scope of activities under which UBIT would be applicable for nonprofits, as well as changing the way the tax and penalties are calculated. See Council on Foundations summary.
- IRS Bias Report Updated: The IRS targeted both liberal- and conservative-sounding organizations for increased scrutiny during the controversial screening process that resulted in extensive congressional investigations, according to a new audit conducted by the Treasury Inspector General for Tax Administration (TIGTA). The Inspector General had previously raised alarm after reporting in 2013 that “the IRS had used inappropriate criteria to identify for review organizations’ applications for tax-exempt status.” The new report examined 17 criteria used to identify and review applications and could not determine how the organizations were chosen for scrutiny in nearly half of the cases, with organizations on both ends of the political spectrum receiving additional investigation and prolonged delays in approval.
State and Local Taxes
The unified tax reform framework from Republican leaders calls for eliminating the federal itemized deduction for state and local taxes (SALT) in order to pay for tax rate reductions and other tax breaks. SALT, one of the original federal tax deductions and claimed by 44 million taxpayers in all 50 states, allows taxpayers to claim a deduction for the state and local taxes already paid. Supporters of retaining the SALT deduction claim that repeal would impose additional fiscal pressures on state and local governments to cut spending rather than increase taxes, ultimately resulting in cuts to vital services that governments frequently hire nonprofits to perform on behalf of governments. SALT has become a sticking point in tax reform negotiations because it largely affects high-tax states and districts such as New York and California, which have large Congressional memberships from both political parties. The Americans Against Double Taxation Coalition urges Congress to retain the deduction, stating, “The impact of eliminating SALT will not only be felt at the kitchen table, it will be felt in our states and local communities. This plan threatens necessary infrastructure investment and vital state and local public services, including education and public safety, that benefit all Americans.”
Taxes, Fees, PILOTs
New Orleans Candidates Debate PILOTs
At a recent debate in New Orleans, some city council candidates expressed views on how they would impose demands for payments in lieu of taxes (PILOTs) or other financial burdens on nonprofit property owners exempt from property tax exemption because of state constitutional protections. Councilmember Jason Williams, an incumbent, “committed … to lobby for [PILOTs]” at the Louisiana legislature, while his contenders varied on the amount and type of taxation they would seek to impose if elected. One candidate actually called the constitutional protection for charitable property as “just silly.” This comes after the Mayor created a tax-review commission, which recommended requesting state permission to impose similar property taxation.
“Behested Payments” Under Ethical Scrutiny
A San Francisco Ethics Commission proposal in California would restrict public officials from asking for charitable or civic donations from a person or group that has business before that official. The proposed restriction reportedly comes in the aftermath of the Los Angeles Mayor raising record-breaking donations for the Mayor’s Fund for Los Angeles, an entity he helped create after his election. These “behested payments” – made when the elected official pressures those who need the official’s vote or support for “donations” – have become more common with elected officials. Some observers allege that it’s a way for individuals or groups doing business with government to skirt contribution limits and curry favor with the elected official. The San Francisco proposal would restrict payments, with the official, but not the donor, facing a $5,000 penalty per violation.
Learning from the Laboratories of Democracy
As Congress begins to take on tax reform in earnest, past and ongoing experiments in the states provide data and experiences that could inform better decision making on a number of issues affecting foundations and nonprofits, including charitable giving and the impact of tax rates. Notably, the advocacy engagement of state associations of nonprofits and many front-line nonprofits are success stories demonstrating that tax reform is always an opportunity to advance missions while defending against harmful policy proposals.
For example, in 2011, the Hawai`i Legislature imposed a cap on all itemized deductions, including charitable donations. Policymakers later found that the estimated $12 million in revenue to the state came at an unacceptable cost of at least $60 million per year in lost donations that support works in the community. Hawai`i's Governor signed legislation removing the limit on charitable donations two years later, stating: "After having taken a close look at the impact this particular section of the law is having on charitable donations made to Hawaii's nonprofit organizations, we support carving out this portion of the law" to protect full deduction of charitable contributions. Based partly on this experience, several states in the last five years have rejected similar legislation that would have repealed or capped charitable giving incentive, including both Delaware and Oklahoma this year.
In 2012 and 2013, Kansas famously enacted a series of tax cuts hoping to generate unprecedented economic growth in the Sunflower State. The tax cuts reduced state revenue by billions ($849.0 million in FY 2016 alone), requiring legislators to make drastic cuts in spending for education, health, and human services. Citing the anemic economic growth, growing budget deficits, and steep spending reductions, this year the Kansas Legislature repealed the "Kansas tax reform experiment."
Other experiments in the states are less drastic and may provide data that can positively influence the federal debate. Arizona adopted a provision last year that extends to April 15 the deadline for making donations to qualified charitable organizations for the preceding tax year. A few years earlier, Colorado expanded its Conservation Easement Tax Credit and increased the giving opportunities for enterprise zones to apply to more eligible nonprofits. Similarly, Missouri restored and expanded giving incentives for food pantries, pregnancy resource centers, and the Children in Crisis program after having let them lapse in 2011.
In the words of U.S. Supreme Court Justice Louis Brandeis, the states have tried "novel social and economic experiments without risk to the rest of the country." Federal tax reform is the ideal time for nonprofit advocates to remind Congress of the record of those experiments in the states and encourage Members of Congress to adopt those that have worked and reject those that have failed.
Click on the map below to find your state association of nonprofits.