The House and Senate Tax Bills Are Terrible for Nonprofits and the Communities They Serve
By Ronna Brown, President, Philanthropy New York and Mike Pratt, President, Scherman Foundation and Board Chair of Philanthropy New York
There has been considerable media attention to the fact that the tax plans passed by the U.S. House and Senate eliminate or reduce of the deduction for state and local taxes and how bad that will be for states like New York. There has also been significant attention to the large, new tax reductions for corporations and the top 1 percent.
What has received less attention is just how bad the tax reform legislation is for the nonprofit sector and the communities it serves. And, of course, the nonprofit sector is in literally every community in America – so this is an issue that has no geographic or political boundaries. When the strength of our nonprofit community is diminished, every one of us will feel the impact.
There are three major ways in which the House and Senate tax reform proposals will hurt nonprofits:
Raising the standard deduction will reduce charitable giving. Raising the standard deduction without adding in a “Universal Charitable Deduction” will substantially decrease charitable giving. Experts estimate that doubling the standard deduction will result in a decrease in charitable giving in the U.S. by up to $13 billion annually. There is a solution…
Extending the charitable deduction to all taxpayers – not just those who itemize – would increase total giving by between 1.3 percent and 4.3 percent, according to Independent Sector research. This solution, known as the Universal Charitable Deduction, would have a negligible effect on total tax revenue (decrease by 0.41 percent to 0.47 percent), according to the same experts.
Eliminating the estate tax will reduce charitable giving. The House bill would immediately double the exemption for federal estate tax and repeal the tax after six years. The Senate bill keeps the estate tax, but almost doubles the threshold (to nearly $12 million for individuals and $22 million for couples). According to the Congressional Budget Office, eliminating the estate tax would decrease donations to nonprofits by 16 to 28 percent. According to research published jointly by Harvard University and the Russell Sage Foundation, the existence of the estate tax has historically played an important role in motivating donors with large estates to establish private foundations, and thus increases long-term charitable giving.
Weakening of the Johnson Amendment will infuse political cash into the sector and compromise its nonpartisanship. The Johnson Amendment, signed into law by President Eisenhower in 1954, prevents nonprofits and churches from engaging in electoral politics. It does not prevent them from engaging in issue advocacy or in lobbying on specific legislation. The National Council on Nonprofits has said, “For more than 60 years, [the Johnson Amendment] has successfully protected charitable nonprofits, religious congregations, and foundations from being hounded by politicians, political operatives, and paid political consultants seeking financial contributions, endorsements, and more.” Protecting the trust and high value that the American public places in the nonprofit sector is critically important. The House tax legislation includes language that would significantly weaken the Johnson Amendment. The provision (Sec. 5201) grants a partial exemption from the Johnson Amendment to houses of worship and their auxiliary organizations. This is simply not healthy for the sector – or the public. The Senate tax legislation left the Johnson Amendment intact, but the House language could make it into the conferenced version.
If tax reform legislation moves forward with raising the standard deduction without a Universal Charitable Deduction, eliminating the estate tax or weakening the Johnson Amendment, it will weaken America’s nonprofits and the communities they serve.
For those reasons alone, the House and Senate tax plans are terrible for nonprofits and communities all across America. We are also concerned about the pressure these tax changes will exert on the federal budget. Leaders of the House and Senate have suggested they will next turn to budget reductions. With President Trump’s expected signature of the conferenced tax plan, big change will come to nonprofits all across the United States: Decreased donations, decreased governmental investment in communities and increasing need among the most vulnerable.
What can our community do? Educate others by speaking up is one answer. What else? Let us know what you think by sharing your ideas in the comments section below.