Tax Legislation Advances as Nonprofits Send Message About Harm to Giving

Nonprofit leaders condemned a tax bill passed by the House on Thursday, saying it would open up nonprofits to partisan political spending and depress charitable giving by an estimated 13 million Americans upon whom many groups rely, according to the Tax Policy Center.

Tim Delaney, president of the National Council of Nonprofits, called it “an insult to the people of this country.”

Dan Cardinali, president of Independent Sector, sounded a similar theme, saying the legislation set off “deep alarm bells.”

The legislation would significantly alter tax incentives for charitable giving, as well as the administration and financial management of charities, universities, museums, hospitals, and foundations.

If key provisions in the bill were to make it into law, argues Mr. Cardinali and other nonprofit leaders, the result would be a tax code that would provide an incentive for only the wealthiest Americans to give to charity, handing them a disproportionate voice on national and community decisions. Further, the House version of the bill would end a prohibition on nonprofits lending support to political candidates, which many nonprofit advocates believe would destroy public trust in charities.

The bill, Mr. Cardinali said, is “a brutal attack on civil society and democracy.”

Difficult Choices

The House vote Thursday — the bill passed by a vote of 227 to 205 — moves Congress closer to the first comprehensive rewrite of the U.S. tax code since 1986, although significant barriers remain. The Senate version of tax legislation remains in committee, and it is unclear whether Senate leaders can make their bill palatable enough for Republicans wary of costs and regressive effects on middle- and low-income Americans to get the necessary votes. Even if they do, House and Senate leaders would have to reconcile significant differences in the two bills to move something to President Trump’s desk.

“I would not bet on it being signed into law by the end of the year, unless they really scale it back,” said Laura Kalick, a tax director at the firm BDO.

Big Omission?

For months nonprofits sounded alarm bells about one item in particular pushed by Republican lawmakers — the doubling of the standard deduction. By increasing the amount of the standard deduction, far fewer people would itemize their charitable gifts. Those who would itemize would most likely be among the nation’s richest people. A study by the Lilly Family School of Philanthropy at Indiana University estimated the provision would reduce giving by $13.1 billion annually. An analysis published this week by the Tax Policy Center estimated a reduction of giving between $12 billion and $20 billion.

Over the summer, House Ways and Means Chairman Kevin Brady, a Texas Republican, assured charity leaders that the bill would seek to expand charitable giving, even with the higher standard deduction.

Many groups that advocate for nonprofits cheered legislative language designed to do that. Rep. Mark Walker, a North Carolina Republican, heavily lobbied his colleagues to accept a provision he wrote that would allow all taxpayers to deduct charitable gifts, even if they don’t itemize, but lawmakers never considered that provision.

Nonprofit leaders said they felt blindsided.

“We’re as mystified as anybody,” Mr. Cardinali said. “There is nothing in that bill that expands charitable giving.”

Brian Walsh, executive director of the Faith and Giving Coalition, also said charities were neglected. “It was a mistake not to recognize that the overall benefit of charitable giving to society far outweighs its cost to government,” he said.

Senate Up Next

Mr. Walsh expects a tight vote in the Senate on the comprehensive bill. But he said he was “heartened” that legislators on both sides of the aisle had offered language similar to Rep. Walker’s that would create a “universal deduction” to allow all tax payers to write off charitable gifts.

Nonprofit advocates say they are united in sharing their views with lawmakers. Last week the Council on Foundations, Independent Sector, and the National Council of Nonprofits bought an ad together in Politico, a political newspaper popular on Capitol Hill. The three groups have a planning call to discuss strategy on Friday.

And earlier this week, more than 2,700 people conveyed their opinions through Independent Sector’s website to Senate Finance Committee members who are drafting the bill. Vikki Spruill, head of the Council on Foundations, said she and her colleagues were deeply disappointed in the House bill.

The bill would cut into charitable giving that’s badly needed in communities across the country, she said, adding that the inclusion of the provision to loosen the Johnson Amendment was “pretty shocking.”

“That’s the bad news,” Ms. Spruill said. “I suppose the good news is we have members in every state who are looking forward to working with the Senate and hope that they do better.”

Megan O’Neil contributed to this report.

Correction: A previous version of this article said that the Tax Policy Center’s analysis estimated a reduction in giving as high as $28 billion instead of $20 billion.