PNY Opposes Tax Reform That Undermines Charitable Giving

Wednesday, November 15, 2017

PNY Opposes Tax Reform That Undermines Charitable Giving

By Michael Hamill Remaley, Senior Vice President, Public Policy & Communications
This piece was originally published as the feature article of the November 2017 New York PhilanthroPost Policy Edition

This morning, after an extensive review process that solicited input from the entire membership, Philanthropy New York’s Board of Directors voted to approve two new official policy statements related to tax reform discussions occurring in the United States Congress.  It also approved a broad outline of activities for Philanthropy New York to educate the sector and the New York Congressional delegation about how proposed tax reform measures could affect the nonprofit sector and the communities it serves.

Philanthropy New York supports efforts to revise the tax code in ways that will further incentivize charitable giving and opposes efforts that would reduce charitable giving.

We are very concerned about proposals contained in the Tax Cuts and Jobs Act (H.R. 1) and the Senate tax bill that would raise the standard deduction if it is not accompanied by a “Universal Charitable Deduction.” Raising the standard deduction would significantly decrease the number of Americans utilizing the charitable deduction, resulting in decreased charitable giving. This decrease 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, according to a study from the Lilly School of Philanthropy. PNY supports extending the charitable deduction to all tax payers, otherwise known as the “Universal Charitable Deduction.” According to Independent Sector research, “Expanding the charitable deduction to non-itemizers, as a stand-alone provision, increases total giving by between 1.3 percent and 4.3 percent and has a negligible effect on total tax revenue (decrease by 0.41 percent to 0.47 percent).”

Philanthropy New York opposes the elimination of the estate tax, and opposes any future increases in the exemption level beyond the current inflation-indexed rate.

According to the Congressional Budget office, eliminating the estate tax would decrease donations to nonprofits. The House bill would eliminate the estate tax entirely after 2024, while the Senate bill keeps the estate tax but raises the threshold so that the wealthy won’t pay tax on the first $11 million of inheritance. The CBO has also found that the estate tax leads affluent individuals to donate far more than they otherwise would, because such donations sharply reduce estate tax liability, and that repealing the estate tax would reduce charitable bequests by 16 to 28 percent. Importantly for the nonprofit sector, the existence of the estate tax functions as a strong incentive for charitable giving, and the Congressional Budget Office has stated that raising the amounts exempt from the estate tax has had the effect of reducing charitable giving, in addition to the loss of revenue to the federal government. 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 therefore expand the philanthropic sector and increase long-term charitable giving. The continued existence of the estate tax therefore directly effects creation of new foundations and the health of the philanthropic sector.

The House bill also contains a provision that would weaken the Johnson Amendment:  

Philanthropy New York opposes any weakening of the Johnson Amendment.

The Johnson Amendment only 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 to Philanthropy New York and our members. The Tax Cuts and Jobs Act 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. Philanthropy New York opposes inclusion of this provision in tax reform. The Senate bill keeps the Johnson Amendment intact.

If the House and Senate go forward with raising the standard deduction without a Universal Charitable Deduction, eliminating the estate tax or weakening the Johnson Amendment, any one of these provisions could have a tremendously deleterious effect on America’s nonprofits and the communities they serve.

Those are just the issues in the bills that most directly affect the nonprofit sector. PNY’s Board has also approved the following language that relates to the tax reform discussion happening in Washington:

“We will balance our work advocating for tax policies that allow philanthropy to flourish with education about the facts surrounding how reduced government revenues affect the work of the nonprofits our members support… The nonprofit sector has seen its capacity severely diminished over the past two decades of ceaseless government budget cuts at the federal and state levels.  Philanthropy New York is generally opposed to tax reform legislation that would further decrease federal revenues because it would directly lead to further cuts in spending that would broadly impact the nonprofit sector.”

Philanthropy New York’s Board has authorized proactive communications with the broader public and the New York Congressional delegation.  We thank all of the members who provided their input on these policy statements and look forward to joining with our colleagues at the Council on Foundations, Independent Sector, National Council on Nonprofits and other regional associations advocating on behalf of the nonprofit community.

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