Nonprofits to Congress
KILL THE BILL AND START OVER
The tax bill that the House and Senate will vote on in the next few days will hurt the work of nonprofits and the people we all serve. It favors special interests and the wealthy over the needs of individuals and communities. It prioritizes the panacea of tax cuts over the promise of real reform. It ignores the clearly articulated concerns of charitable and philanthropic organizations about the adverse consequences of many provisions. With very few exceptions, the bill that came out of the conference committee will harm the ability of charitable nonprofits and foundations to address needs in communities and advance their missions.
“They have the votes to pass the tax bill, so why bother calling?,” some may ask.
The majority in Congress ignored the voices of charitable nonprofits when it inserted policy changes that will depress giving and kill nonprofit jobs, when it attempted to politicize 501(c)(3) organizations against their will, and when it chose to expand the federal deficit and tax tax-exempts to provide huge tax cuts to wealthy corporations and individuals. Members of Congress need to know that the millions of people who work for and support charitable works aren’t buying the reality-defying talking points and that they will hold the politicians accountable.
In the view of the National Council of Nonprofits, the consequences of the tax bill will be devastating to the millions of people around the country who rely on charitable nonprofits for everything from food and shelter to faith-based sanctuaries and job training to a safe place to escape domestic abuse and enrichment through the arts. By necessity, spending cuts will be the immediate result of profligate tax cuts, ensuring that organizations that already have been stretched too far are simply going to have to turn people away, discontinue vital programs, and even close their doors entirely. All of these are the foreseeable results of a bill that fails to look past the short-term ‘win’ of cutting taxes to recognize
the very high price the public will be expected to pay.
The National Council of Nonprofits urges every person committed to the mission of a charitable nonprofit or foundation to make Congress know the Tax Cuts and Jobs Act would sabotage the vital work of nonprofits for the people we serve and for the ability of organizations dedicated to the public good to address community needs. Go to Take Action Now for ways you can call, mobilize others, and tweet in opposition to the tax bill.
In taking a stand to Kill the Bill and Start Over, nonprofits and foundations aren’t the only organizations opposing this disastrous bill. Others opposing the tax cut bill include:
- AARP (social welfare organization for older Americans with nearly 38 million members): “The fallout of the plan would be even more pronounced on older Americans and the poor, as it puts Medicare, Medicaid and other safety net programs at risk. With an estimated cost of nearly $1.5 trillion in lost revenue over the next decade, the tax overhaul would trigger automatic spending cuts to key programs mandated by the 2010 ‘pay-as-you-go’ law, including $25 billion to Medicare in 2018 alone.”
- Americans Against Double Taxation (a coalition of government organizations, service providers, and other stakeholders dedicated to protecting the state and local tax deduction (SALT)): “The substantial cut in the SALT deduction will raise taxes for homeowners in many states, drive down property values, and threaten funding for infrastructure and vital public services.... We urge lawmakers to vote no on the conference report, as this is the only option at this stage to preserve SALT, prevent double taxation, and preserve the integrity of state and local finances.”
- Businesses for Responsible Tax Reform (an organization of nearly 2,000 small business owners): "The proposals do nothing to level the playing field for small businesses. They significantly lower the corporate tax rate but fail to close many loopholes big businesses use to avoid paying taxes…. The proposals also do little to simplify the code, and actually make it more complex for the more than 90% of small businesses that organize their firms as pass-through entities.... A ballooning deficit is bad for business because it drives interest rates higher."
- National League of Cities (representing America’s 19,000+ cities and towns): "Congress can't pay for tax reform by stripping the tools that help build stronger, healthier and more economically vibrant communities. [The bill] preserves many key credits and partially protects the deduction for state and local taxes (SALT). Unfortunately, the final bill falls short on its promise to protect American families and the cities and towns in which they live."
Tax Cuts and Jobs Act
What’s In the Tax Bill
The 503-page tax bill provides significant, permanent tax cuts for corporations and other businesses, and temporarily lowers taxes and repeals many deductions for most individuals, all at a cost of at least $1.5 trillion over the next decade. Numerous popular provisions expire after 2025, making their renewal likely, and thus deepening the federal deficit even more. The legislation generates more than $300 billion in revenue by effectively repealing the Affordable Care Act’s individual mandate to purchase health insurance, which will cause
13 million Americans to lose insurance and hike health insurance premiums for many. The tax bill coming before Congress this week does not include language repealing or weakening the Johnson Amendment (see article, below). The following summarizes the provisions in the Tax Cuts and Jobs Act that relate most directly to the sustainability and work of charitable nonprofits.
- Charitable Giving: The bill would increase the standard deduction for individuals (to $12,000), couples (to $24,000), and heads of households (to $18,000), resulting in a decline in the number of those who itemize from 30% of taxpayers to less than 10% of taxpayers. Experts estimate the change will shrink giving to the work of charitable nonprofits by $13 billion or more each year, costing 220,000 to 264,000 nonprofit jobs. Charitable and philanthropic organizations did not oppose doubling the standard deductions, but instead offered a solution to avoid the devastating consequences. To hold the work of charitable nonprofits harmless under the proposed changes, they proposed including a universal charitable deduction to create a giving incentive for all taxpayers. Those efforts were not successful. The increase in the standard deduction would expire after 2025.
- Estate Tax: The measure would maintain the estate tax, but double the exemption to about $11 million for individuals and about $22 million for couples, effective through 2025. In addition to reducing federal revenues by nearly $100 billion over ten years, the estate tax is an important source of revenue for the work of charitable nonprofits and creation of foundations as it encourages donors to address future needs in their communities through estate planning.
- State and Local Taxes (SALT): The legislation seeks to cap at $10,000 the deductibility of state and local income taxes and property taxes, in the aggregate. Many nonprofits are concerned that the provision will pressure state and local governments to enact tax and spending cuts, leading to elimination of programs serving people in need and increasing burdens on charitable nonprofits and foundations to fill the gaps.
- Taxing Tax-Exempts: To pay for other federal tax cuts, the bill would create a new 1.4 percent excise tax on net investment income of nonprofit colleges and universities with assets of at least $500,000 per full-time student and more than 500 full-time students. This provision should be of concern to all charitable nonprofits because it represents an invasion of nonprofit independence, replacing the political will of elected officials with the fiduciary judgment of nonprofit board members. The bill would also increase unrelated business income taxes (UBIT) by requiring that nonprofits calculate their taxes on each trade or business separately, and not aggregate profits and
losses of all entities, as under current law. As a result, a deduction from one trade or business for a taxable year may not be used to offset income from a different unrelated trade or business for the same taxable year. Further, the legislation would levy a new 21 percent excise tax on nonprofits that pay compensation of $1 million or more to any of their five highest-paid employees.
- Ticking Fiscal Time Bomb: In order to limit the apparent cost of the bill and make the math add up to no more than $1.5 trillion in cuts, the bill drafters made numerous compromises and employed budget gimmicks that will undoubtedly raise the costs by many hundreds of billion dollars in the coming years. Prime among these is setting the tax cuts for individuals to expire after 2025, a year after the next presidential election. In 2026, Congress will be seen as either raising taxes (if it does nothing), or continuing the tax cuts at great cost to the deficit, which will force either spending cuts, or once again target certain subsectors by raising their taxes. Since the Tax Cuts and Jobs Act violates the
barrier of taxing tax-exempt organizations to expand tax cuts for more favored interests (see above), there is every reason to be concerned that the fiscal crises created by the expiration of the individual tax cuts will include attacks on America’s nonprofit institutions.
Many issues raised during the tax reform process were left on the cutting room floor. As discussed below, the legislation does not weaken the Johnson Amendment, despite aggressive support from an extremely well-funded minority. The final bill does not include numerous troubling provisions that had been passed in the House version, including repeal of private activity bonds, raising taxes on private foundations in the name of tax simplification, increasing reporting requirements for donor advised funds, and a measure to deny operating foundation status to some art museums. The final bill ultimately makes no changes to the volunteer mileage rate
or the law on intermediate sanctions, although significant, harmful reforms were included in an earlier Senate draft that may be seen again in the future.
One Bright Spot
Nonprofit Nonpartisanship Preserved
The final version of the tax bill does not include language to repeal or weaken the Johnson Amendment, the longstanding tax-law protection that prevents candidates for public office and their donors from hounding charitable nonprofits, houses of worship, or foundations for endorsements and other political campaign engagement. But this is not for lack of trying. The Senate Parliamentarian scratched the House provision from the tax bill because the measure violated the “Byrd Rule,” a budget rule that prevents the majority from slipping in policy changes on filibuster-free reconciliation legislation reserved only
for revenue, spending, and deficit reduction provisions. One Senator personally argued with the Parliamentarian and sought to modify the provision at the last minute to get around the protection of the Byrd Rule, but to no avail.
The House-passed version of the tax bill would have politicized the 501(c)(3) community by allowing charitable, religious, and philanthropic organizations to engage in partisan electioneering for or against candidates if such action is “in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose,” and it incurs no more than “de minimis” incremental expenses in doing so. The result of the proposal, according to the Joint Committee on Taxation, would be the diversion of billions of non-deductible dollars from political organizations, like candidate and party campaign committees, to newly politicized churches and charitable entities because
donors would for the first time be able to take charitable tax deductions.
The very well-funded advocacy groups seeking to politicize charitable nonprofits are promising to continue their fight to repeal the Johnson Amendment. They and their supporters in Congress continue to ignore the more than 5,600 organizations nationwide, along with thousands of religious leaders, faith organizations, law enforcement, and the vast majority of the general public who oppose weakening the Johnson Amendment. Charitable nonprofits, houses of worship, and foundations must keep up their vocal opposition to any change to nonprofit nonpartisanship.
The Work Ahead for Charitable Nonprofits
Lift Our Collective Voices to Kill the Bill
As noted above, the National Council of Nonprofits urges every person committed to the mission of a charitable nonprofit or foundation to make Congress know the Tax Cuts and Jobs Act is a disaster for the people we serve and for the ability of organizations dedicated to the public good to address community needs. Go to Take Action Now for ways you can call, mobilize others, and tweet in opposition to the tax bill.
Remain Vigilant to Protect Nonprofit Nonpartisanship
Sponsors of bills to politicize charitable nonprofits (Senator James Lankford (R-OK) and Congressman Jody Hice (R-GA)) said Friday they intend to press forward, with Hice vowing, “the fight is far from over.” Likewise, major media outlets emphasized last week that repealing the protections in the Johnson Amendment remains top of mind at the White House. See, e.g., Time (“Ralph Reed, founder of the Faith and Freedom Coalition, spoke with Trump [last Monday] about the fate of the half-century-old law called the Johnson Amendment” and “Trump also raised the issue of the Johnson Amendment
with Liberty University president and early Trump endorser, Jerry Falwell Jr., at a White House Christmas party earlier this week”); Wall Street Journal (“Sen. James Lankford, an Oklahoma Republican who has long advocated for doing away with the Johnson Amendment, said Vice President Mike Pence in a meeting last week again ‘brought it up to me’ that the House change should be included in the final tax legislation. ‘The president and vice president speak often about this being corrected, in public and private settings,’ Mr. Lankford said in an interview. ‘The White House has made it
clear, it needs to be in there’”).