Charities and foundations are lucky. Too often their self-interest and the public interest may seem to be in conflict. Not this time, thanks to Republican’s efforts at tax “reform.”
We confront an effort to transfer more than $1.5 trillion away from public purposes, away from government and charities, in order to further enrich fantastically wealthy people and corporations. Far less would benefit middle class people – and some of them would be worse off. Even failing Republican leaders’ hopes to finance their scheme through cuts in Medicare and Medicaid or President Trump’s and the Senate’s desire to kill Obamacare, other “reforms” would profoundly hamstring our nation’s ability to address critical social needs.
All of this is really more of the same rather than “reform” and it must be opposed for the sake of both the nonprofit world and the people and causes it serves.
The standard deduction provisions alone would cost charities over $13 billion in donations each year. Changes in the estate tax, proposed for repeal in the House and a doubling of the exempt amount in the Senate, would also have a devastating impact. When there was just a one-year hiatus in that tax, bequests dropped by over a third – and repeal would cost the Treasury over $270 billion that might otherwise fund critical needs over a decade. Yet, the Republican proposal is to allow the top one-fifth of one-percent, the very wealthiest 00.2 percent of Americans, to keep that money even though most of it has never been and never would be taxed.
Simply put, the various tax policies being pushed in the House and Senate, and by the president, would very significantly cut charitable donations and otherwise harm nonprofits as a means to finance giveaways to Americans who already have the most.
And why are Republicans willing to do so much harm to charities and ordinary people? Because, as candidly admitted by politicians themselves, wealthy CEOs and their partisan donors (often one in the same) demand it and have even threatened them if they fail to deliver! And as a harbinger of worse things to come should House policies pass, some political nonprofits are spending over $40 billion to push those interests.
In a further move to serve their self-interest, House Republicans would repeal the Johnson Amendment and allow charities, 501(c)(3) organizations, to engage in partisan political activity. As donors start to use tax-exempt charities to fuel their own partisan agenda and shift political contributions to them, the Treasury would lose over $2 billion and organizations would become embroiled in terribly divisive struggles. They would also be much more open to coercion by their donors – and by government contract and grant officials – to take their partisan political positions or face adverse consequences.
Other provisions in either the House or Senate versions of “reform” – and it’s important to remember that the most harmful policies in either can become law through a conference committee’s work even if not in both bills as initially passed – do harm to certain charities and those they serve. One proposal would tax the earnings of particular charitable endowments, those of large universities. As it stands, this would cost charities over $3 billion, money that otherwise might have used for student financial aid – and it would open the door to extending such policies to still other charitable entities and still other funding streams.
Related proposals would hurt university students more broadly and more directly. The deduction for student loan interest would disappear potentially devastating about 12 million Americans. Student tuition waivers also would be taxed. All in all, another $65 billion would be taken away from students to finance Republicans’ money grab – while pushing regressive policies that will exacerbate inequality and make it harder to realize economic opportunity and the American Dream.
Under another Republican “reforms,” universities, hospitals and other charities, would no longer be able to finance facilities through tax-free bonds issued by state and local governments, raising the cost of education and health care by close to $40 billion. School teachers’ deductions for supplies they buy for their students would disappear, and that only covered the first $250 each spent. And the close to nine million Americans ill enough to claim medical expense deductions, with many served by nonprofits, are be more likely to stay sick with the transfer of over $180 billion in tax benefits to the wealthy and to large corporations (as contrasted with small businesses). Seniors would be hurt the most.
For the first time, other than the tax on their unrelated business activities, charities would find certain of their practices subject to fiscal disincentives. Compensation of over $1 million paid to any staffer would be subject to an excise tax.
While some might wish to discourage what they see as an excess in such use of charitable dollars (I among them), others forcefully argue three things (I also among them): first, without competitive salaries, complex nonprofit hospitals and similar entities today will be unable to attract the people they need to lead them; second, that government ought not impose such penalties on nonprofits without commensurate action on corporations that drive up executive compensation as egregious multiples of people’s average wages; and third, it is a terrible precedent for politicians to decide which charitable practices they like or don’t like and to use tax policy to enforce their will.
Still other policy provisions will dramatically affect subsets of Americans. While capping the deduction for mortgage interest is likely to benefit those with more expensive homes, House Republicans don’t seem to mind the fact that it will most penalize tax-payers in cities with the highest costs of living – which generally vote Democratic. So too the Senate’s plan to eliminate the deduction for state and local taxes; that too would most punish those living in generally “blue” localities.
As complex as House, Senate and the president’s “reform” packages may be, they clearly work to the detriment of charities and the public. As Republicans tout their efforts as directed to the middle class, even Senate Majority Leader Mitch McConnell had to admit that for 25 percent of those in such circumstance these proposals will result in tax increases. It is people like President Trump who will benefit the most; he is projected to save at least $1 billion through “reform.”
No matter which of these specific proposals survive initial votes in the House and the Senate, no matter which of the president’s avaricious ideas take hold, no matter what comes out of conference committee for final votes, these specific “reforms” would be ruinous for the nation. Charities and organized philanthropy need to protect themselves, the people and the planet by speaking up now!
Version of this piece also appear in The Chronicle of Philanthropy and PhilanTopic.