How will the House tax proposal affect nonprofits?

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We’ve analyzed the House tax proposal as introduced last week and are tracking the actions that are reshaping it every day. The Senate will soon release its competing version. We’ve identified four questions nonprofit leaders can ask about the impact on nonprofits to help your nonprofit look ahead and be prepared. The answers below relate to how the House bill may impact most charitable nonprofits.

  1. How might the House bill affect the motivations of individual donors and foundations to donate to your nonprofit?

    This bill nominally retains the existing itemized deduction for charitable donations, but by nearly doubling the standard deduction, it effectively puts this important incentive to give out of reach for 95 percent of American taxpayers, according to a study from the Lilly School of Philanthropy. That study projects the reduction in the number of people who itemize would result in a decrease in charitable giving in the U.S. by up to $13 billion annually. Other studies set the cost even highter. So far, the tax legislation fails to include a universal deduction or other incentive sought by a broad coalition of nonprofits and foundations that would enable all Americans to receive a tax incentive for contributing to public charities. The change in giving policy in the House bill could be devastating for many organizations. You are no doubt familiar with the flurry of giving at the end of the calendar year, motivated by deductions. With this tax bill, that motivation goes away for the vast majority of taxpayers. We agree with the assessment of our colleagues at the Council on Foundations, who are not pleased with the House bill’s weak support for charitable giving either: “This will result in billions of dollars less in charitable giving, which means billions less going to meet growing community needs.”

  2. What’s the connection between tax cuts for individuals and corporations, and state/federal budget cuts for programs that individuals in your state rely on?

    A very strong, direct connection. Tax cuts will result in less money flowing into the federal Treasury. This is not just a math problem or a federal budget challenge. In any given year, states receive nearly a third of their revenues from the federal government, so cutting federal revenues will lead to cuts to state and local government. Plus, about a third of revenues for all charitable nonprofits collectively (not necessarily for each nonprofit) is earned because of the number of nonprofits performing services under government grants and contracts. This means that when there is LESS money collected by federal income taxes, there will be LESS money going to the states and local governments, and LESS for programs and services that governments hire nonprofits to provide. And with loud calls in Congress to increase defense spending by $60 - $70 billion, that will double down on pressure to cut domestic spending even more.

    Huge revenue cuts = Huge spending cuts = Huge HOLE in the budgets of state and local governments and charitable nonprofits. As nonprofits’ resources are squeezed further, their ability to provide services is diminished. Consequently, people and communities will be harmed, as funding for health care, education, the environment, the arts, child care, elder care, and many more services will be lost. Foundations can never fill all the gaps caused by government spending cuts. Note: Look at the dollar bill that shows that private foundations collectively provide only about 3 percent of the sector’s revenue.

    As The Washington Post reported, "Trump's plan would put the onus on states, companies, churches and charities to offer many educational, scientific and social services that have long been provided by the federal government."

  3. Will changes in the tax laws open the door to political fundraising and candidate endorsements by charitable nonprofits?

    If the House bill is any indication, it’s very possible, even likely, that churches and other houses of worship will become political pawns, with donors giving them money meant to be used to support a particular candidate and taking a deduction for something they wouldn’t otherwise receive a deduction for (making a gift to a political campaign). Pressure will be placed on religious communities to endorse candidates, and in fact this bill will pave the way for televangelists and newly-politicized churches to seek contributions to do so. The nonpartisan Joint Committee on Taxation testified this week that they fully expect people who contribute to political campaign committees, social welfare organizations, and other dark money sources will turn to newly political churches to get a tax deduction on top of seeking to influence who is elected. While nonprofits that aren’t churches are not mentioned in the House proposal (Section 5201), any weakening of nonpartisanship hurts communities.

    To the vast majority of us, politicizing houses of worship will only aggravate the uncivil nature of our social discourse, with the fallout affecting families, schools, and all community groups. This proposed change from more than 60 years of precedent conflicts with the views of the vast majority of organizations as reflected in the Community Letter in Support of Nonpartisanship, signed by more than 5,500 organizations in all 50 states; in the Faith Voices letter signed by more than 4,000 faith leaders; in the separate letter signed by more than 100 denominations and major religious organizations; and another letter signed by the law enforcement community, as well as polls showing that 72 percent of the public support keeping the Johnson Amendment in place and nearly 90 percent of evangelical pastors say it is wrong for preachers to endorse candidates from the pulpit.

  4. How can my nonprofit advocate to protect its mission?

    There are many ways to advocate, but do it soon! Congress and the Senate are working out the details of the tax proposals as you read this (assuming it’s still November). There is nothing better than the old-fashioned phone call to your elected officials. Direct tweets are also an option, but only after you’ve made the call. Another good option: write a letter to your local newspaper. (Members of Congress read those publications, especially if you put their name in it.) What about opening your next board meeting by asking this question: “What will these tax proposals do to the people we serve?” Also, share the information in Nonprofit Advocacy Matters with your board. You can use this national debate to focus your own nonprofit’s board on the valuable role of advocacy and to clarify the expectation that each board member will actively advance and protect the nonprofit’s mission.

PS: If you are interested in how the 400+ page House bill’s provisions are different from current law, we recommend reading: Tax Cuts and Jobs Act section by section summary (House Ways and Means Committee).

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