President Proposes $6 Trillion Budget, Tax Changes
The White House released the full set of spending, taxing, and policy recommendations on Friday that collectively are known as the President’s budget proposals for fiscal year 2022 that begins on October 1, 2021. The documents, which outline requests to Congress and are not binding, propose a federal budget of $6 trillion, including a 16% increase in domestic spending, and a small hike in defense spending. As announced previously in other major legislative priorities, the President is calling for tax increases to pay for the extra spending. Specifically, he asks Congress to raise the corporate tax rate to 28% (up from
21%; down from 35% in 2017), plus recommends numerous clean energy tax credits. He also seeks to restore the top marginal individual tax rate to 39.6% for individuals earning more than $453,000 and couples earning more than $509,000; tax long-term capital gains on adjusted gross income of more than $1 million at a 37% tax rate; and recognize the increase in value of appreciated property at time of donation or death, and make immediately taxable, with exceptions for family-owned and -operated businesses.
The Treasury Department “Green Book” accompanying the budget documents details plans for making permanent several temporary tax provisions, including the expanded Earned Income Tax Credit, the Premium Tax Credit, the Child Tax Credit, and the Child and Dependent Care Tax Credit. Notably, there is no mention of the Biden campaign proposal to limit the value of itemized deductions, including charitable contributions, to 28%. This is a win for the charitable community that has opposed the proposal since it was included in President Obama’s first budget request in 2009.
- Anti-Asian Hate Crime Bill Enacted: With strong bipartisan support, Congress passed and President Biden signed legislation aimed at strengthening federal efforts to address hate crimes directed at Asian Americans. The COVID–19 Hate Crimes Act establishes a position at the Justice Department to expedite the review of hate crimes, encourages the creation of state-run hate crime hotlines, provides grants to law enforcement agencies that train their officers to identify hate crimes, and introduces a series of public education campaigns around bias. In a related action, last week President Biden signed an Executive Order establishing the White House Initiative on Asian Americans, Native Hawaiians, and Pacific Islanders that is charged with advancing a “whole-of-government agenda” on equity, justice, and opportunity for AA and NHPI communities.
- Public Charge Rule Impact: Participation in public benefits programs by low-income immigrant households declined last year as a result of a Trump-era rule, according to a new report by Urban Institute. The Biden Administration reversed the rule, but it had been effective from 2019 through 2020. The rule changed the factors considered for determining an immigrant’s application for green cards or temporary visas to include whether applicants accessed public benefits, such as the Supplemental
Nutrition Assistance Program (SNAP, commonly referred to as food stamps), Medicaid, or housing assistance. The Urban Institute report found that more than one-in-four adults in low-income immigrant families reported they or a family member avoided the public benefits or other help due to immigration status concerns despite facing preventable hardships such as food insecurity, medical bills, and housing stability caused by the pandemic. One in eight did not seek or accept nutrition, health, or housing assistance and others avoided unemployment benefits, free or low-cost medical care, and emergency rental assistance.
- Partisan Divide Over Reporting Major Donors on a Confidential Basis: Members of Congress are taking polar opposite positions on whether non-charitable nonprofits should be required to report the identities of their major donors and donation amounts to the Internal Revenue Service on a confidential basis. In 2020, the Trump Administration abolished a longstanding requirement that social welfare organizations, labor unions, and trade associations – groups that legally may engage in partisan electioneering for or against candidates for public office – submit a completed Schedule B identifying their major donors with their annual Form 990 informational tax return. Nearly all Republican Senators have
sponsored a bill to codify the rule that non-charitable nonprofits are exempt from reporting their major donors. Senate and House Democrats, on the other hand, are calling for the Treasury Department to reverse the Trump-era action and restore the confidential reporting requirement. A recent letter from Democratic Representatives to Treasury Secretary Yellen stated, “As it stands, this policy weakens federal tax laws, campaign
finance laws, and longstanding efforts to prevent foreign interference in U.S. elections.”
- Helping Nonprofits Improve Energy Efficiency: Bills in the Senate and House seeking to improve energy efficiency expressly extend incentives and support to charitable nonprofits. This past week, the Senate Finance Committee narrowly approved on a party-line vote the Clean Energy for America Act. The legislation would, among other things, extend transferable tax deductions to nonprofits that build new facilities or retrofit existing buildings with energy saving technologies. Separate legislation, the bipartisan Nonprofit Energy Efficiency Pilot Program Act (S. 196/H.R. 3296), would establish an energy efficiency materials pilot program to help nonprofits decrease their greenhouse gas emissions and cut their operating budgets. Specifically, it would make available grants of up to $200,000 to help nonprofit organizations finance purchases of energy efficiency materials for their buildings.
- 2-1-1 Legislation Introduced: A bipartisan coalition of Senators introduced a bill last month (S. 1570) to facilitate nationwide accessibility and coordination of 211 services and 988 services. The goal of the “Human-services Emergency Logistic Program Act of 2021,” or the “HELP Act of 2021,” is to provide information and referrals via telephones to all residents and visitors in the United States for mental health emergencies, homelessness, other social and human services needs, and for other purposes. Learn more from United Way Worldwide.
- Answering Treasury’s Questions on ARPA Guidance: In its Interim Final Rule explaining how state, local, Tribal, and territorial governments may use the $350 billion in new American Rescue Plan Act funds, the Treasury Department invites the public to respond to 38 questions in areas ranging from eligible uses and premium pay to broadband and recoupment of funds. Using this helpful tool provided by NCSL, it is clear that many of the questions are relevant to charitable nonprofits, including
#1 – other uses for responding to COVID; #4 – unemployment insurance; #5 – other uses for addressing pandemic impact; #8 – aiding low-income populations and communities; #9 – housing; ##10-12 – premium pay; and ##25-26 – broadband for underserved communities. The Treasury Department encourages nonprofits and other members of the public to submit responses to these questions by July 16, 2021, to Regulations.gov (with the
caption "Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule Comments").
Infrastructure Negotiations Continue in Fits and Starts
The release of the President’s budget proposals did not divert attention away from the main policy action in Washington: bipartisan negotiations between Republican Senators and the White House over significant legislation to fund infrastructure and other projects and programs over the next five to eight years. The results of these negotiations are of great importance to charitable nonprofits for two reasons: first, the substantive details in any legislative package, and second, whether policymakers take the bipartisan path or the partisan path on the President’s top agenda item will determine which, if any, of the nonprofit policy priorities can be attached and enacted this year. Further, how any infrastructure bill
will be financed could affect other nonprofit priorities.
In late March, President Biden offered the $2.2 trillion American Jobs Plan as his initial set of infrastructure proposals. A group of Republican Senators countered with a $568 billion package dealing only with roads, bridges, waterways, and broadband – items they consider “true” infrastructure matters. The White House then released a $1.7 billion counteroffer that the Republicans rejected and put forth their counteroffer last week. Called the Republican Roadmap, the Senators upped their proposal to $928 billion in spending on infrastructure, about $250 billion of that amount deemed new spending (above what’s already expected by extending current law). The plan one-pager claims, “This counteroffer delivers on much of what President Biden provided in his feedback to us during our Oval Office meeting while still focusing on core infrastructure investments.”
Paying for It: Regardless of what the two sides agree to spend, the answer to how to pay for it could create significant challenges. Politico summarized the standoff this way: “The White House has suggested paying for the package by increasing the corporate tax rate, a non-starter for the GOP. Republicans have instead suggested user fees and using unused money allocated for coronavirus relief, arguing that there is a precedent for doing so. Democrats have rejected those suggestions.” In a separate memo to the President, the Senators suggest partially paying for the legislation by
tapping unspent federal relief funds sent to the states. That latter proposal – reclaiming or “clawing back” monies approved in the American Rescue Plan Act – is strongly opposed by state and local governments, and by nonprofits.
States Open Tax Codes Despite Federal Concerns
Legislators in at least 15 states have introduced legislation to adjust tax rates or provide rebates this year despite an ongoing dispute with the federal government over the interplay between federal grants and state tax cuts. Several state legislatures (Arizona, Idaho, Iowa, New Hampshire, North Carolina, and Oklahoma) have enacted or are considering substantial tax cuts to individual and corporate tax rates. Georgia and Nebraska lawmakers have already enacted cuts to personal income tax rates, and
Nebraska legislators are also looking to expand existing income and property tax credits. Conversely, a bill enacted in New York increases the top marginal tax rate and applies a temporary surcharge to the corporate tax rate. A measure failed this year in Hawai`i that also sought to increase tax rates for capital gains and corporate taxes. Under the recent American Rescue Plan Act, states cannot use State and Local Fiscal Recovery Funds to pay for tax cuts, but the Treasury Department Interim Final Rule provided some safe harbors that offer states some flexibility. More than a dozen state Attorneys General have filed lawsuits objecting to the restriction on their taxing authority.
Using Federal Funds to Level Unemployment Trust Fund Balances
Policymakers in at least 29 states so far have allocated or proposed to use a portion of their American Rescue Plan Act dollars to shore up state unemployment insurance trust funds. As made clear under a Treasury Interim Final Rule released last month, states may use their share of the $350 billion State and Local Fiscal Recovery Fund to restore their unemployment trust funds to pre-pandemic levels. This decision is of significance to nonprofits with employees because it allows states to avoid significant automatic tax
increases on contributing employers as well as pay reimbursing employers for amounts that did not receive the same federal or state support. Lawmakers in California, Georgia, Maryland, Ohio, and Wyoming have all announced transfers ranging from $25 million to $1.1 billion.
Additionally, some states are devoting some of their ARPA funds to repay unemployment loans from the federal government. Hawai`i lawmakers appropriated $700 million of previous federal stimulus monies to avoid insolvency and make loan payments at the end of their legislative session. The Louisiana Legislature is considering allocating $300 million for their unemployment trust fund. West Virginia Governor Justice has proposed
devoting $600 million to repay the federal unemployment loan, but lawmakers are pushing back on the amount. State unemployment trust funds were quickly depleted during the pandemic as state officials paid out unprecedented unemployment insurance claims to laid off workers. Seventeen states had solvency levels below the recommended standard at the beginning of 2021, and 19 states had outstanding state Federal Unemployment Account loan balances totaling nearly $52 billion as of the end of May.
States Offer Back-to-Work Bonuses for Unemployed
Some state executives have offered bonuses to get people back to work in their states, while nearly half of Governors have announced the cancellation of some or all extended and expanded federal unemployment benefits. Governors in Arizona, Montana, New Hampshire, and Oklahoma have announced plans to provide
back-to-work bonuses of between $500 and $2,000, and at the same time end enhanced unemployment benefits. Residents will have to show proof of work to be eligible for the payment. Connecticut Governor Lamont is offering cash bonuses of $1,000 to $10,000 for “long-term unemployed” residents in the state who secure jobs. People who submitted unemployment benefits claims for the last full week of May must find work before the end of the year to be eligible. In North Carolina, legislation that has passed the House would provide
$1,500 payments to workers on unemployment who find jobs within 30 days and $800 payments to workers on unemployment who find employment within 60 days.
Having a Say in Allocating Fiscal Recovery Funds
The federal government is sending every state, local, Tribal, and territorial government significant resources allocated from the $350 billion in Fiscal Recovery Funds enacted as part of the American Rescue Plan Act. The governments have wide latitude on how they spend the funds, but they don’t have to make their decisions in secret or without input from the public and other stakeholders. Some governments are seeking, and many nonprofit state associations and others are demanding, the opportunity to offer wise counsel on how the funds can best be used to serve the public good.
Several local governments are making it known that public input is greatly appreciated. Officials in Lompoc, California, Flint, Michigan, Bellaire Village and Mansfield, Ohio, Alexandria, Virginia, and Charleston, West Virginia have created various forums to receive constituent input, such as online forms, phone hotlines, and
listening sessions. Some translated the requests for public input into multiple languages to increase access and responses from all segments of their residents. Results thus far have indicated particular interest in funding job skills and training, small businesses, housing, and broadband access. Other suggestions like dental care in low-income neighborhoods and food insecurity in Black communities have also caught decisionmakers’ attention. “Usually when we do something new, I like to look and see what other jurisdictions have done. But we’re all going through this at the same time – we’re building the plane as we fly it,” said Dana Wedels, Alexandria, Virginia’s special assistant to the city
Not waiting to be asked, many groups are making their views known at the outset of discussions. The Utah Nonprofits Association sent a letter to Utah’s Governor in mid-May making the case for setting aside a significant portion of the funds as grants to local nonprofits. As UNA chief executive Kate Rubalcava wrote, “Our nonprofit organizations have all answered the call during the pandemic to serve, but have and still are struggling
to keep up with demand.” She added, “Nonprofits need more support as the economy continues to recover from the pandemic-related economic downturn.”
Similarly, the Minnesota Council of Nonprofits and partner organizations sent a letter to state policymakers “asking for immediate action to create a nonprofit resiliency and recovery fund, which would provide critical investment in the nonprofit organizations delivering essential services to Minnesotans across the state.” The state association of nonprofits followed that up with letters to officials in each of
the state’s 87 counties encouraging them to recognize the opportunity to partner with charitable organizations to promote the most effective use of the ARPA funds.
Members of the Pennsylvania Association of Nonprofit Organizations are advocating for the Commonwealth to provide targeted support exclusively to nonprofits. The state association of nonprofits prepared a Targeted Relief Media Campaign to help frontline nonprofits advocate for the relief they need.
Charitable nonprofits operate in every community across our country, often in partnership with local governments to promote the public good. Who better than local nonprofit leaders to recommend the best uses of the ARPA funds? Now’s the time you help your community by reaching out like colleague organizations have done. Don’t wait to be asked.
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