Tax reform is heating up and has replaced the health care debate—for now. While tax reform might not appear to have huge impact on the nonprofit human services sector, it does. The interconnectedness of the proposed Republican tax reform framework, along with budget reconciliation instructions, and likely cuts to non-defense discretionary funding has the potential to harm our sector’s funding and the lives we serve.
The tax reform framework that President Trump unveiled, which is being advertised as helping all taxpayers, is not yet complete and does not offer a way to fully offset the loss of revenue ($1.6 trillion) the government would receive from tax cuts. President Trump claims that the economy will grow so rapidly that it will pay for itself. However, economists note this is not the case, as self-financing would require that for every $1 spent, $5-6 would need to be generated. Goldman Sachs reported that the tax plan would only add 0.1-0.2 percent to America’s economy in 2018 and 2019. Upon analysis, the Alliance for Strong Families and Communities has concluded that the Trump tax plan would not pay for itself and would increase our deficit, possibly forcing lawmakers to cut other programs to generate savings.
Federal lawmakers are very aware of this. In fact, the House of Representatives fiscal year 2018 budget resolution calls for savings of $203 billion in mandatory funding (entitlements such as Medicaid, Medicare, Temporary Assistance for Needy Families (TANF), and Supplemental Assistance for Needy Families (SNAP)), in order to pay for tax cuts and balance the budget in 10 years. Senate Republicans could cut Medicaid spending by $1 trillion and Medicare spending by $470 billion over the next decade, according to a breakdown released by Senate Budget Committee Democrats.
Although the administration claims the framework helps all taxpayers, the released plan, thus far, only lowers rates for the very wealthy and for corporations. It appears that by doubling the standard deduction, middle-income earners would be able to receive a much larger tax return payment. Increasing the standard deduction eliminates many of the deductions that benefit low- and middle-income workers such as state tax deductions.
An analysis by the Tax Policy Center, a nonpartisan think tank, found that about a quarter of middle-class households (those earning $49,000-$86,000) would see their tax bills rise under the plan. This disproportionately affects low- and middle-income earners.
Typically, tax cuts are paid for by reducing or eliminating tax deductions, such as charitable giving, mortgage, local taxes, and child care. The proposed framework, currently preserves the charitable giving deduction. However, with fewer people itemizing due to the increased standard deduction, it will cause charitable giving to lose as much as $13.1 billion a year, according to Independent Sector. The majority of charitable giving comes from donors who would fall into and just above the increased standard deduction. Therefore, fewer people will itemize and not be able to take advantage of the charitable tax deduction. Fewer people able to take advantage of this deduction would mean fewer people giving to nonprofits.
The combination of potential losses in charitable giving; cuts to federal human service funding streams; and possible cuts to entitlement programs, such as Medicaid and SNAP, creates a triple threat. Those we serve would lose many opportunities for economic mobility and our sector would have fewer funds to serve them, exacerbating the roadblocks to well-being.
The Alliance Public Policy and Mobilization Office will be providing opportunities for the strategic action network to articulate the impact that these types of proposed legislation would have on our country to federal lawmakers.
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