New tax “reform” bill could seriously screw nonprofits and the people we serve

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Hi everyone. Before we launch into today’s exciting topic, check out the pilot episode of this hilarious show called “The Humanitarians.” It’s set at an organization called Stuff We Don’t Want (SWEDOW), and had me cracking up at clever one-liners like “Have we assessed the actual need for winter coats in Sub-Saharan Africa?” Check it out. We need to support more shows about nonprofit work.

Unfortunately, the rest of this post is about tax “reform.” I know, I know, I don’t really want to talk about it either. But, like taking out the compost or putting on deodorant or remembering our partner’s birthdays, we have to do it, or else bad things happen. To reward you for reading, though, and for me to actually write this, I’m putting in pictures of bunnies throughout this post. The bunnies have nothing to do with taxes.  

Last week, our political leaders released their

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plan for tax “reform,” which will help really rich people and corporations get even richer, and screw over poor and middle-class people. However, good news: most people will be able to file their taxes on a postcard! Yay! This will totally make up for the fact that many of their benefits and programs they rely on may be cut.

To pay for the tax cuts for the extremely wealthy, including our president, the government has to cut down on funding for programs and services that benefit people. We nonprofits, of course, provide many of these programs and services, so it’s going to be rough for us and for the people we serve. But if that’s not frustrating enough, there are three more things we need to worry about:

First, in the effort to simplify tax filings, the standard deduction is proposed to be doubled, which means fewer people will be motivated to itemize deductions, which likely means less money donated to nonprofits. A study commissioned by Independent Sector finds

“The current proposals, which include an increase in the standard deduction and a decrease in the top marginal tax rate, would decrease charitable giving […] by as much as $13.1 billion a year. (4.6 percent).”

I don’t think anyone is recommending we oppose the increase of the standard deduction. What we need, though, is another incentive for people to give to nonprofits to balance it out. The National Council of Nonprofits recommends we tell our elected officials that

If the standard deduction is to increase significantly, then a non-itemizer, or ‘universal,’ charitable deduction open to all Americans and not just the wealthy should be implemented to continue to encourage Americans to give generously to the missions and work they support.”

Second, the Estate Tax may be repealed. This is also called “The Death Tax” and it affects large inheritances. Its repeal will likely greatly decrease giving to nonprofits. According to this thorough analysis by Patrick Rooney, published in the Nonprofit Quarterly,

The best estimates are that the repeal of the estate tax would considerably reduce giving, both

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during life and at death. We should also be concerned about the repeal of the estate tax from an equity perspective, as it provides an opportunity to tax capital gains and other forms of wealth, legal and illegal, that have escaped taxation […] Finally, if we believe that wealth conveys power, then we should be concerned that the repeal of the estate tax enables further concentrations of income, wealth, and power among those whose greatest accomplishment may have been getting lucky at birth.”

Third, Unrelated Business Income Tax (UBIT) may be expanded. Here’s an article by Independent Sector with more details, but basically,

“proposed changes to qualified sponsorship payments could change how charitable organizations fund programs like homeless or natural disaster one-stop service centers, sports leagues for at-risk youth, walks to fight chronic disease, or public arts and cultural events. Expanding [UBIT] would require charities to pay taxes on sponsorships supporting these programs, even though they are mission-related. Other potential targets for an expanded UBIT include royalties, non-public research, and sale of distressed properties.”

Josh Sattely from TSNE MissionWorks says this may “tip many capacity building and service-oriented c3s into becoming for-profits.” Nothing against for-profits, but a bunch of capacity building organizations feeling like they have no choice but to become for-profits won’t be good for our communities.

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There you go. We nonprofits are likely to face not just less funding from the government and less funding from individual donors due to fewer incentives for people to give, but we’ll also be paying more taxes on things like sponsorships and other earned revenues, and some of us may have to give up our nonprofit status and become for-profits. As if our jobs weren’t difficult enough. If anyone needs me, I’m going to sneak into the next showing of Thor: Ragnarok and stay there; at least the potential destruction of Asgard is fictional.

What we need to do. Our elected officials need to hear our concerns, and we have to make our voices heard quick, like this week. The Administration is trying pass tax reform by Christmas or even sooner, so we must all be loud. Find your Representatives and Senators (here’s a very helpful website) then call, email, and tweet at them. Tell them to support a universal charitable deduction, not to repeal the Estate Tax, and not to expand Unrelated Business Income Tax for nonprofits.

And while we’re at it, let’s tell them to protect the Johnson Amendment, which has been keeping nonprofits nonpartisan so we can focus on the work and not be embroiled in endorsing political candidates. I wrote about it earlier, with pictures of puppies. Here’s a simple script from Washington Nonprofits that you can use:

“Don’t use tax reform to weaken or repeal the Johnson Amendment, which keeps partisan politics out of [your state’s] nonprofits, houses of worship, and foundations. I am concerned that efforts to repeal or weaken the Johnson Amendment would harm my community and damage the public’s trust in my organization and many other [your state] nonprofits and churches.”

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Thanks everyone. I know tax laws are not very exciting (maybe I can convince The Humanitarians to write it into their next episode to make it more appealing). But these proposed changes will greatly affect our sector and the people who depend on us. Let’s all take time this week to do our part by contacting our elected officials, writing op-eds, and otherwise expressing our concerns. The communities we serve need us to. Let’s get hopping.

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