Federal Tax Law - Tax Cuts & Jobs Act

The Tax Cuts & Jobs Act, signed into law by the President on December 22, 2017, includes numerous provisions that 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 harms the ability of charitable nonprofits and foundations to address needs in communities and advance their missions.

• Resources on How the New Federal Tax Law Impacts Charitable Nonprofits, National Council of Nonprofits
• Nonprofit Analysis of the Final Tax Bill Proposal, prepared by the National Council of Nonprofits, Updated January 24, 2018. 

Why It Matters

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.

Where We Stand

In the view of the National Council of Nonprofits, the consequences of the tax law 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.

Nonprofits and foundations aren’t the only organizations that opposed the disastrous bill. 

See also:

• Congress’ Tax Bill Message to Charitable Nonprofits: “We Don’t Care – You’re on Your Own”, National Council of Nonprofits, December 20, 2017.
• Charitable Nonprofits to Congress: The Final Tax Bill Would Sabotage Our Work in Communities. Kill the Bill and Start Over., statement of the National Council of Nonprofits, December 15, 2017.
• An Open Letter to the Hundreds of Millions of Americans Who Have Worked for, Volunteered for, Donated to, or Benefited from the Work of a Charitable Nonprofit: i.e., every living person in the USA, Tim Delaney, Nonprofit Quarterly, November 29, 2017.
• Joint Letter Urging Senators to Vote No on Tax Reform Bill, signed by the National Council of Nonprofits, the Council on Foundations, and Independent Sector, November 29, 2017.

What Nonprofits Can Do

Help protect the charitable giving incentive that supports the work of nonprofits in our communities now and in the future by sharing your story here and contacting your Senators and Representatives to tell them how the giving incentive translates into impact in your community. Let Congress know that they can still protect charitable giving incentives through a non-itemizer or universal deduction, rather than a time to shrink giving.

What’s in the Tax Law?

The 503-page tax law 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 law did not include language repealing or weakening the Johnson Amendment. 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 law increases 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 law maintains the estate tax, but doubles 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 law caps the deductibility of state and local income taxes and property taxes at $10,000, 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 law creates 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 also increases 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 levies 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.

What’s Not in the Tax Law?

• Nonprofit Nonpartisanship / “Johnson Amendment”: The final version of the tax law 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.
• Intermediate Sanctions: The law 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.
• Other Items: The law 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.

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