Two Councils Say: Vote House Bill Down, Start Over
The National Council of Nonprofit and the Council on Foundations today issued a joint statement declaring the House tax reform bill fatally flawed and calling for its defeat when the House of Representatives votes later this week. The two organizations, which together represent tens of thousands of charitable nonprofit and philanthropic organizations, object to numerous provisions in the bill that, if enacted, would make it much harder for charitable nonprofits and foundations to serve their communities. The statement highlights the doubling of the standard deduction and adverse unintended consequence in severely reducing charitable giving to work in communities. Next, the two organizations express fervent opposition to a provision in the bill, Section 5201, that would politicize the 501(c)(3) community by weakening the decades-old Johnson Amendment. Going further, Tim Delaney of the Council on Nonprofits stated, “Cutting taxes to the point of an additional $1.5 trillion shortfall simply doesn’t make sense when the needs in our communities are so great. The massive spending cuts at all levels of government will impose enormous – and unrealistic – pressures on charitable nonprofits and foundations to fill the growing gaps.” The statement concludes: “The House needs to vote down this bill and start over. We hope the Senate will do better.”
Tax Reform Accelerating on Two Tracks
It’s full speed ahead for Republican tax reform bills this week as the House plans to pass the Tax Cuts & Jobs Act (H.R. 1) by Thursday as the Senate expects to complete committee action on its version of the bill before the end of the week. The House bill was approved on a party-line basis by the Ways and Means Committee on November 9. The legislation is expected to come to the House floor with a “closed rule,” meaning that no amendments will be allowed and Representatives will only be able to vote for or against the Committee version of the bill.
In the Senate, Finance Committee deliberation is set to begin Monday, November 13, on a bill release in summary form on November 9. As in the House, significant changes to the bill in the Finance Committee are not likely. Committee members (listed here) and staff were informed late last week that amendments would be rejected unless they were cost neutral or contained offsetting revenue raisers, and were accompanied by a cost estimate from the Joint Committee on Taxation. Those restrictions have no dissuaded Senators from drafting more than 300 amendments. Senator Stabenow (D-MI) and Ranking Member Wyden (D-OR) have prepared an amendment for Committee consideration that would create a universal deduction that would allow all Americans who take the standard deduction to also claim a deduction of up to 60 percent of their adjusted gross income (AGI). (See next article.) Other amendments include one to incorporate the CHARITY Act, several to make the work and economic development tax credits permanent, and a proposal from Senator Roberts to permit charitable deductions from estates for donations to non-charitable nonprofits, including 501(c)(4) social welfare organizations, (c)(5) labor unions, and (c)(6) trade associations. Once the Committee completes its work this week, the Senate version will go to the Senate floor under an expedited procedure known as “reconciliation” that limits debate and permits passage by a simple majority rather than the usual 60 votes needed to overcome a filibuster. It is expected that the full Senate will vote on the bill after the Thanksgiving holiday.
Support Stabenow-Wyden Universal Deduction
The amendment that Senators Stabenow and Wyden plan to offer in the Finance Committee would grant an “above-the-line deduction,” meaning that taxpayers could deduct their charitable donations even if they take the standard deduction. Under the House and Senate bills, the charitable deduction would be unavailable for 95 percent of taxpayers. The Joint Committee on Taxation (JCT) estimates that itemized charitable deductions will drop by $95 billion in 2018. Not all of this would disappear; the change is estimated to shrink giving to the work of charitable nonprofits by $13 billion or more each year.
Call Senators on the Senate Finance Committee (listed here) and urge them to support Stabenow-Wyden Amendment #9. Tell them “the amendment is needed to prevent tax reform from disqualifying 95 percent of taxpayers from receiving any tax benefits for giving back to their communities.” Call now: 224-3121 or go here to find the direct-dial numbers.
Comparing the House and Senate Tax Bills
With a few notable exceptions, both the House and Senate tax bills hew closely to the Tax Reform Framework negotiated by Republican congressional leaders and White House officials. Each bill adds to the federal deficit by $1.5 trillion over 10 years by lowering individual and corporate tax rates, and nearly doubling the standard deduction while repealing most deductions and exemptions. Neither bill includes a universal deduction to allow all Americans to receive a deduction for giving back to communities that is needed to overcome the adverse impact various proposed changes would have on charitable giving (but see above). Both bills would immediately double the exemptions under the estate tax to exclude estates valued at less than $11 million for an individual and $22 million for couples; the House bill goes farther and repeals the estate tax after 2024. The drafts in the House and Senate both turn to the nonprofit community for new revenue, proposing to impose excise taxes on some nonprofit college and university endowments as well as on salaries of higher-paid employees of nonprofits. Significantly, unlike the House version, the Senate bill does not currently include language weakening the Johnson Amendment, streamlining the private foundation excise tax, nor a provision eliminating private activity bonds upon which many nonprofits rely for capital financing. The Senate bill does include several new provisions that could be problematic for charitable nonprofits, including new unrelated business income taxes (UBIT) and rules on intermediate sanctions. See the National Council of Nonprofits’ House-Senate Comparison Chart.
Partisanship Provision Expanded in House Bill
At the last hour of the last day of House Ways and Means Committee consideration of the House tax bill, Chairman Brady offered a “manager’s amendment” that radically expanded the anti-Johnson Amendment provision, Section 5201, ensuring that every 501(c)(3) organization would lose the protection from demands by candidates for public office and their political operatives. As now written, the bill would politicize the 501(c)(3) community by allowing charitable nonprofits, houses of worship, and foundations to engage in partisan electioneering for or against candidates, as long as doing so occurs “in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose,” and the organization incurs no more than “de minimis” incremental expenses.
The provision would be effective from 2019 through 2023.
The nonpartisan Joint Committee on Taxation (JCT) estimates that the provision would cost the federal government $2.1 billion over just six years because donors would divert their currently nondeductible political campaign donations to political churches and charitable nonprofits in order to claim charitable tax deductions. The provision is vehemently opposed by the broad nonprofit community – charitable, religious, and philanthropic – plus state law enforcement officials. The National Council of Nonprofits issued astatement declaring full-throated opposition to the last-minute change to the bill that would weaken Johnson Amendment protections for all 501(c)(3) organizations, promising to “fight any provision to weaken the Johnson Amendment protections in the pulpits, food banks, and editorial pages; in town squares, public meetings, and everywhere people concerned about their communities come together.”
- Labor Department Seeks Hold on Overtime Litigation: On October 30, 2017, the federal government served notice of its intent to ask the Fifth Circuit Court of Appeals to delay further court action on the 2016 overtime regulations that would have doubled the threshold for determining which employees are entitled to overtime pay. The Labor Department is undertaking new rulemaking on the overtime rule to determine what the salary threshold should be. A lower-court judge had held that the salary level in the overtime rule exceeded the Labor Department’s authority, and concluded that the regulations were invalid. See background.
- Children’s Health Insurance Legislation Advances: The House passed a bill to renew funding for the Children’s Health Insurance Program (CHIP), community health centers, and other public health programs. Funding for CHIP expired on September 30, and several states are expected to shut down their programs by the end of the year if Congress doesn’t take action. The House vote was largely along party lines because Democrats objected to cuts of $6.35 billion to the Prevention and Public Health Fund to pay for the restoration of funding for other programs. A Senate version of the bill, S. 1827, has bipartisan support because it doesn’t have offsets.
- Census 2020 – Nonprofits, Tell Local Government to Sign Up: Tribal, state, and local governments only have until a December 2017 deadline to register for the Local Update Census Addresses (LUCA) operation and review the U.S. Census Bureau’s residential address list for their jurisdictions for the 2020 Census. Participation in LUCA is a local government’s best opportunity to help “ensure an accurate decennial census count for their communities” and proper allocation across the country of more than $400 billion in funds. All active, functioning governments are eligible to submit comments, including federally recognized tribes, states, counties, cities, and townships. The deadline to register for most jurisdictions is December 15, but that may be extended for recent disaster-designated areas. See Governing article for more information.
Private Activity Bonds
The House tax bill contains a provision that would eliminate tax-exempt private activity bonds (including qualified 501(c)(3) bonds and mortgage revenue bonds) after December 31, 2017. Private activity bonds are a type of tax-exempt bond that can be issued by or on behalf of local or state governments for the purpose of providing special financing benefits for qualified projects. The financing is used most often for projects of a private entity, and the government generally does not pledge its credit. The National Association of Counties supports the continued issuance of the bonds because they provide leverage for counties and localities to promote local economic development, like moderate-to-low-income housing, hospitals, airports, and other public works.
According to Michael Weekes, President of Providers’ Council in Boston, “The preservation of Private Activity Bonds (PAB) and advance refunding bonds for our Massachusetts community-based human services nonprofit organizations is essential to their capability to provide homes, treatment centers, schools and other facilities for millions of people in our communities.” He explains that the communities served “include people who have a disability, are elderly, children at risk, those with addictions or experiencing homelessness and many others in need.” Weekes argues that “eliminating private activity bonds will result in a cost shift that will have to be borne by our nonprofits with limited resources, or state and federal government, or other funders, and thereby reduce resources for essential services to these vulnerable populations.”
Election Day 2017
Two gubernatorial races, more than a dozen big city mayoral races, special election state races, city and county council races, local school board races, and ballot measures were all taken up this Election Day 2017, reminding the country that local and state politics happen every year and hit close to home. The most watched race for Virginia Governor went to Democrat Ralph Northam, and New Jersey elected Democrat Phil Murphy. This is viewed by many as a precursor to the much-anticipated 36 races for governor in 2018. State legislative races also went to Democratic contenders in Georgia, New Jersey, Virginia, and Washington, giving Democrats complete control of legislatures of nine states. Republicans still control the majority of states and chambers nationwide. Most incumbents maintained their mayorships in big cities, but Charlotte, North Carolinaelected its seventh mayor in eight years. As for ballot measures, Mainebecame the first state to expand Medicaid via the popular vote, a measure that is opposed by Governor LePage. Texas voters approved a measure to expand the types of professional sports teams that can hold charity raffles. Tucson, Arizona voters rejected a plan to raise sales taxes to fund early childhood education and the local zoo.
The Cuts are Coming
Even before being hit by federal spending cuts imposed as a result of the tax reform bills and felt across the country, states – which on average receive more than 30 percent of their revenue from the federal government – continue to struggle paying their obligations. States have already racked up more than $2 trillion in unfunded liabilities for employee pensions and other benefits, making them that much less resilient to fewer revenues coming from Washington. States are taking steps to limit future liabilities or are having trouble restoring funding for cuts previously made. West Virginiarecently announced that people who apply for Temporary Assistance for Needy Families (TANF) must submit to drug screening. The move is touted as an effort to reduce substance abuse, but could reduce the number of recipients by five to ten percent, who invariably will turn to nonprofits for more help. Earlier this year, Missouri approved cuts in health care services to an estimated 8,000 elderly and disabled people. A hoped-for special session to restore the cuts did not materialize this month.
Montana Continues its Strict Campaign Finance Tradition
Montana has a long history of enacting strong laws to regulate campaign contributions, dating back to a U.S. Senate bribery scandal in 1899. Since then, Montana voters have approved two laws restricting corporate spending in state elections and limiting the amount given to candidates from donors. The Corrupt Practices Act from 1912 stood for nearly 100 years and prohibited corporate donations to political candidates, until it was struck down by the U.S. Supreme Court in 2012 based on the Citizens Uniteddecision. However, contribution caps approved by voters in 1994 have so far survived federal court scrutiny. A federal district court judge has twice found the limits unconstitutional as violations of free speech rights. Last month the Ninth Circuit Court of Appeals once again overturned the judge, keeping the voter-approved limitations in place. A three-judge panel held that Montana’s campaign finance limits were both justified by and adequately tailored to the state’s interest in combating quid pro quo corruption or its appearance.
This section of the newsletter is usually focused on the past activities of visionary nonprofit advocates who identify problems in their community and then develop policy solutions and campaigns to overcome them. In this edition of Nonprofit Advocacy Matters, most of the challenges at present have to do with tax reform legislation hurtling through the U.S House and Senate. Rather than look back, we encourage readers to take advocacy in action on the House and Senate tax bills by using the following materials to promote the best interests of the people we all serve.
On the Johnson Amendment and Nonprofit Nonpartisanship