Summary of Key Policy Items in Comprehensive Tax Reform
As of December 6, 2017
As the House and Senate rapidly attempt to pass tax reform by the end of 2017, the League is tracking a broad range of provisions under consideration that can impact the capacity of orchestras and other nonprofit organizations to serve their communities. Please see the list below, which we will continue to update as next steps unfold. And, remember that you can weigh in on any of these policy matters through a customized message to your members of Congress via the League’s online advocacy campaign.
- Protecting giving among growing ranks of non-itemizers: While the charitable deduction is preserved for those who itemize their tax returns, the number of itemizers is expected to fall dramatically as the standard deduction is nearly doubled under the House and Senate proposals to simplify tax returns. Charitable giving has been projected to decline by up to $13 billion per year if only 5% of taxpayers itemize their returns. In response to earlier proposals to increase the standard deduction, advocates have been seeking a "universal charitable deduction" available to non-itemizers. At this point, the House and Senate tax reform bills do not include such a provision to safeguard against potential drops in giving as fewer taxpayers itemize their returns, despite interest in both chambers. Senator James Lankford (R-OK) prepared the Universal Charitable Giving Act for introduction in the Senate, and Rep. Mark Walker (R-NC) introduced the Universal Charitable Giving Act in the U.S. House of Representatives. Senator Debbie Stabenow (D-MI) and Ranking Finance Committee Member Ron Wyden (D-OR) offered an amendment to create a universal charitable deduction as the Senate Finance Committee considered its bill, which was voted down along with all other amendments offered by Minority Committee members.
- Reducing deduction limits for itemizers: For taxpayers who would continue to itemize returns, both the House and Senate bills raise the limit on the deductible amount from 50% of adjusted gross income to 60%, potentially incentivizing more giving by those who had reached the 50% cap. Both bills also would also repeal the "Pease limitation," which currently reduces total itemized deductions for high-income tax payers.
- Estate Tax: The House bill would double current exemptions and phase out the estate tax over six years, prompting concerns about the potential impact on incentives for charitable giving. The Senate bill would preserve the estate tax, but double the amount exempted from taxation.
- Protecting the non-partisanship of 501(c)(3)s: What started as an effort to allow more political speech by churches has now been expanded to impact all 501(c)(3) organizations, as the House tax bill would allow nonprofits supported by tax-deductible contributions to endorse candidates for office, removing the protection in law (called the Johnson Amendment) that prevents nonprofits from being pressured into partisan activity. The Senate bill does not include such a provision.
- UBIT: While the House bill did not include previously-considered proposals that would have substantially altered Unrelated Business Income Tax (UBIT) calculations and subjected corporate sponsorships to new UBIT requirements, the Senate bill makes changes in this area. For organizations that operate more than one trade or business, they must calculate net income for each business separately, rather than in aggregate. A loss can only be applied to the tax liability from the business where it occurred. The House bill would require nonprofits to pay UBIT on transportation fringe benefits to employees and employee access to on-site gyms and athletic facilities.
- Executive compensation: In both the House and Senate bills, a 20% excise tax would be applied for compensation exceeding $1,000,000 for any one of an organization's five highest-compensated employees.
- Qualified performing artist tax benefit: Performing artists who satisfy three tests are allowed to deduct their expenses “above the line” on their tax returns, which is more advantageous than treating such expenses as itemized deductions. This tax benefit was originally enacted in 1986 and one of the three tests limits their allowable adjusted gross income to no greater than $16,000. The House bill eliminates this deduction, while the Senate bill retains it.
- Entertainment expenses: Along with the elimination of a number of business-related deductions, no deduction would be allowed for entertainment, amusement, or recreational activities or membership dues relating to such activities under the House and Senate bills.
- Artists’ low-income housing tax credits: While the House bill does not make changes in this area, a last-minute amendment to the Senate tax reform bill would remove current access to tax credits for building low-income housing for artists.
- Private activity bonds: Nonprofits have used tax-exempt private activity bonds to obtain lower-cost financing for projects that provide a benefit to the public. The House bill proposes to eliminate private activity bonds, while the Senate bill preserves them.
- Historic preservation tax credit: The House bill would repeal tax credits that help to support the preservation of historic buildings. The Senate bill would retain the credit, but would require the credit to be taken over the course of five years.
- Artist Fair Market Deduction omitted: Neither the House nor the Senate bill includes a provision long-sought by arts advocates that would allow composers and other artists to take a fair market value deduction when contributing their works to charitable collecting institutions.
- Musical works still treated as capital property: While the House bill originally eliminated a provision in current law that allows a taxpayer to treat the sale or exchange of a musical composition or a copyright for their own musical work as a capital gain or loss, the provision was restored during House committee consideration. Neither the House nor Senate bill would change this provision of tax law.
See the comprehensive overview provided by the National Council of Nonprofits and Independent Sector’s summary of the House and Senate bills. The League is a leading partner with these and other national nonprofit organizations pursuing tax policies that will strengthen the services provided by charitable organizations.