Tax Reform Bills Have Nonprofit Sector on High Alert

After months of anticipation about the specifics of federal tax reform proposals, national nonprofit sector policy leaders expressed grave concerns about both House and Senate bills.

Although the initial version of the House bill included limited changes to Section 5201, also known as the Johnson Amendment, for churches and other houses of worship participating in political activities, an amendment passed during a House Ways and Means Committee mark-up session expands the Johnson Amendment repeal to all charitable nonprofits for tax years 2019 through 2023. The Senate version, released on November 9, appears to leave the Johnson Amendment intact.

“On the next to last page of the House tax bill, changed at the last hour of the last day of committee action, comes the most outrageous act of political deviosity seen in Washington in decades," said Tim Delaney, CEO of the National Council of Nonprofits. "The Chairman’s last-minute changes to Section 5201 mean that every 501(c)(3) organization – charitable nonprofits, houses of worship, and private foundations – would lose the protection from demands by candidates for public office and their political operatives."

The impact of the expansion of the standard deduction and other tax changes like the estate tax on the charitable deduction is also causing alarm. Dan Cardinali, president of Independent Sector said, "While we are pleased that the Senate bill rejects the House’s total assault on the Johnson Amendment, it still fails the sector in many important respects. It limits the charitable deduction rather than expanding it to all taxpayers by way of a universal charitable deduction. This means 95 percent of Americans will be taxed on their charitable contributions."

Changes to the estate tax are also anticipated to affect charitable giving since preserving the estate tax at current levels provides incentive for the wealthy to give more of their estate to charity.

Subsectors are also raising grave concerns about specific proposals that undermine their ability to fully serve their communities and deliver on their missions. The House bill's repeal of the student loan interest deduction and the new 1.4% tax in both House and Senate proposals on the endowments of private universities have the education sector pushing back. Nonprofit affordable housing developers are advocating for the preservation of private activity bonds, included in the Senate bill, but repealed in the House bill. Arts and community development organizations have raised concerns about the House's proposed repeal of and Senate changes to the historic preservation and new market tax credit programs. Human service organizations, like Easter Seals, are concerned with the proposed repeal of the Work Opportunity Tax Credit. Overall, tax credits programs will be challenged to sustain their value due to the proposed drop in the corporate tax rate from 35% to 20% and all government grants and contracting will be challenged by the drop in revenue created by this effort, now estimated to expand the federal deficit by $1.5 trillion.

House and Senate leadership have vowed to fast track their respective tax reform bills.

Additional information and analysis:

Independent Sector's Tax Reform Summary - House Bill and Senate Bill

What Tax Reform Proposals Could Mean for the Work of Nonprofits

Post date: November 13, 2017
Topics: National Issues | National News | National Legislative Updates

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