Keep an Eye on Washington
OpEd by Marnie Taylor, President and CEO
While all eyes have been on the State Capitol for this special session, we should also be paying attention to what is happening at the federal level. Congress has begun the process of reforming the nation’s tax code. It has been decades since it has been substantially changed, and the task this time could be complicated and challenging. While proposals are on the table that could benefit some Americans and businesses, the charitable sector will see a number of impacts should the entire proposed package be approved and implemented.
Another major impact of the proposed changes to the tax code include the doubling of the standard deduction. At face value, it would simplify taxes for millions of Americans. However, it would reduce the number of itemizers (Americans who itemize on their tax return) from 30 percent of all tax returns to just five percent according to a study from the Lilly School of Philanthropy at Indiana University.
This decrease in the number of people who itemize would result in a decrease in philanthropy in the U.S. by up to $13 billion annually according to the Lilly School of Philanthropy. While Americans give to charity out of moral obligation, religious tithing and local charitable interests, the incentive at the federal level incentivizes families and individuals to give more.
However, there is a bill that would introduce a “non-itemizer” deduction for those who don’t itemize. It would cap the itemization, but it could incentivize those non-itemizers to continue giving to their nonprofit of choice.
Additionally, repeal of the estate tax would have an impact on planned giving – gifts made from estates. Individuals currently have an incentive to donate to charity in their estate plans because of the current tax. Without that, there is little financial incentive to leave sizeable, or even smaller, gifts to the charities of choice.
Finally, we have been carefully watching Congress and how they might deal with the Johnson Amendment, the 1954 regulation that bars nonprofits from endorsing political candidates. There have been a number of attempts through legislation both stand-alone and as part of other packages to weaken the regulation. Most likely, according the National Council of Nonprofits, Congress will make changes to the tax code that could open the door for unwanted partisan interference through allowing of candidate endorsements.
At the Center, we will be keeping track of both the state budget and federal tax reform as the process unfolds in the next several weeks. We know it will be challenging, and we will help prepare nonprofits for changes that will impact their giving.