The nonprofit sector had a few clear wins during the road to a final tax bill, but will suffer the greatest by unintended consequences caused by changes to the tax code. Our sector was successful in ensuring changes to Private Activity Bonds and repealing the Johnson Amendment were not in the final Tax Cuts and Jobs Act. Both measures would have limited our ability to serve communities. However, changes to the standard deduction will deeply effect nonprofit giving.
Under current law, the charitable deduction is only available to the roughly 35 percent of filers who itemize their tax returns. By doubling the standard deduction, between 90-95 percent of filers are estimated to not itemize their returns, thus reducing the charitable deduction to just 5-10 percent of filers. The Tax Policy Center estimates this change will reduce charitable giving by up to $20 billion per year. According to Independent Sector, this is roughly the equivalent of losing all charitable giving in Vermont, North Dakota, Alaska, South Dakota, Maine, Wyoming, Rhode Island, Delaware, Montana, West Virginia, New Hampshire, Hawaii, New Mexico, Idaho, Nebraska, Nevada, Arkansas, Mississippi and Kansas combined. A recent study by George Washington University concluded that this new law will result in a loss of at least 220,000 nonprofit sector jobs.
The new law also more than doubles the size of estates that will be subject to the federal estate tax to over $22 million. The estate tax creates a strong incentive for the super-wealthy to give to charity rather than pay the tax. Eliminating that incentive for many more estates will cause a substantial decline in very large gifts.
Congressional leadership has admitted to the rushed process to pass the Tax Cuts and Jobs Act, providing opportunity to capitalize on what appears to be openness in making changes to the bill throughout 2018. The Alliance for Strong Families and Communities strategic network will continue to advocate for changes to the tax bill that benefit more low- and middle-income earners and reduces harm to charitable giving amounts.
Read the Alliance’s statement on the tax bill.
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