By: Marissa Manlove, President/CEO, Indiana Philanthropy Alliance
In response to H.R. 1, the Tax Cuts and Jobs Act tax reform legislation recently released by the U.S. House Ways and Means Committee, Indiana Philanthropy Alliance (IPA) is concerned that the bill’s present form would have a devastating impact on Indiana charities and the communities they support. The biggest blow is the bill’s significant weakening of the charitable deduction—a 100-year-old tradition to incentivize charitable giving. While the bill does not eliminate the charitable deduction, millions of individuals and couples will no longer be able to access the deduction because it will only be available to wealthier taxpayers who will continue to itemize their tax returns. A recent study conducted by the Indiana University Lilly Family School of Philanthropy found that proposed tax reforms could decrease charitable giving by $13.1 billion.
There are nearly 33,000 nonprofit organizations in Indiana, employing over 230,000 people. Each year, Hoosiers give $2.97 billion and Indiana foundations give $1.48 billion to charitable organizations to fund increased access to education and health care; help Hoosier families escape the cycle of poverty; help military veterans and seniors; mentor children; and protect the environment. A reduction in charitable giving could significantly reduce these services and the quality of life for all Indiana residents.
This problem can be solved by allowing a universal charitable deduction that would allow all taxpayers to claim the charitable deduction. This could increase giving by $4 billion per year. Over 75% of American voters agree that they would like to see a fair policy that encourages Americans at all income levels to give more to charities and their communities. On the 100th anniversary of the charitable deduction, Congress should seize this opportunity to enact policies that expand the charitable deduction to 100% of American taxpayers.
Other elements in the bill that could impact Indiana foundations and the sector include:
- Simplifying the private foundation excise tax to a flat rate of 1.4 %.
- Imposing a 1.4 % excise tax on net investment income of private colleges and universities which have assets that equal at least $100,000 per full-time student.
- Weakening the “Johnson Amendment” by permitting churches to make statements relating to political campaigns in the ordinary course of religious services and activities, with de minimus expenses.
- Doubling the estate tax and generation-skipping tax exemption to $10 million, and repealing both after six years.
- Requiring that an art museum claiming the status of a private operating foundation be open to the public for at least 1,000 hours every year to be recognized as such.
- Exempting private foundations from the excess business-holdings tax if they own a for-profit business under these conditions: (1) the foundation owns all of the for-profit business' voting stock, (2) the private foundation acquired all of its interests in the for-profit business other than by purchasing it, (3) the for-profit business distributes all of its net operating income for any given tax year to the private foundation within 120 days of the close of that tax year, and (4) the for-profit business' directors and executives are not substantial contributors to the private foundation nor make up a majority of the private foundation's board of directors. Donor advised funds (DAFs) are explicitly excluded from this provision.
- Requiring DAFs to disclose annually their policies on donor advised funds as well as the average amount of grants made.
In collaboration with our national partners in the sector, Indiana Philanthropy Alliance will be closely evaluating the impact and monitoring the debate that will be taking place in both the U.S. House and Senate as their respective versions of tax reform continue to evolve. The charitable community has a long and unique history of being the sector where people come together to solve problems and improve our communities. IPA advocates for tax policy that encourages the growth, maintenance, and vitality of private foundations and public charities, respects donor choices, and incentivizes all donors to give to charities of their choice without influence, restriction, or inequitable treatment.
What You Can Do Now
H.R.1 is scheduled to be “marked up” by the House Ways and Means Committee beginning Nov. 6th with plans to bring it to the full House of Representatives for debate and vote soon after. The Senate’s tax reform bill is expected to be rolled out as early as Nov. 8th and we do not yet know what it will include. While we have not yet fully evaluated some of the other elements that are being proposed, NOW is the time to contact Indiana’s Congressional delegation (House and Senate) and ask them to support a universal charitable deduction that would be available to all taxpayers, regardless of income level, that is not tied to itemizing deductions.
Contact Your Legislators:
- Contact Senator Joe Donnelly by email or call 202) 224-4814
- Contact Senator Todd Young by email or call (202) 224-5623
- Find and contact other legislators here.
- Phone the U.S. Capitol Switchboard at (202) 224-3121. A switchboard operator will connect you directly with the office you request.
- Contact your legislators via social media
Go here to find IPA's federal advocacy materials, including:
- IPA policy positions on: The Charitable Deduction, Donor Advised Funds, Protection of Endowed Gifts, and Simplification of the Excise Tax
- Indiana grantmakers by congressional district