Foundation leaders blanketed Capitol Hill this week, urging lawmakers to protect the charitable tax deduction as Congress readies for debate on a broad tax overhaul for the first time in more than a generation.
Grant makers have been trekking to Washington for the annual Foundations on Hill event since 1994, but the prospect of deep domestic spending cuts plus an overhaul of the tax code generated far more interest in the trip than usual.
“The time is here now,” said Debbie McKeon, senior vice president for member services at the Council of Michigan Foundations.
Mark Dederer, executive director of the Sheri and Les Biller Family Foundation, agreed: “It’s more important than ever for us to be here.”
About 265 foundation executives attended this year’s event on Tuesday and Wednesday, nearly double last year’s tally.
In addition to defending the charitable deduction, grant makers pressed for a proposal to let people donate directly from their retirement accounts into donor-advised funds. They also sought changes to the foundation excise tax.
Foundation leaders defended the charitable deduction, sought changes in the foundation excise tax, and expressed displeasure with the Trump budget proposal.
However, some foundation leaders made the trip primarily to express their displeasure with the federal budget proposal that President Trump offered last week, which would cut or eliminate many programs designed to help the poor while increasing outlays for the military.
“We want to make sure our priorities are voiced and heard,” said Leslie Ramyk, executive director of the Conant Family Foundation in Illinois. “I don’t think it’s a fair budget.”
The Capitol Hill event was sponsored by the Forum of Regional Associations of Grantmakers, the Alliance for Charitable Reform, and the Council on Foundations.
‘Huge Impact on Giving’
The budget document Mr. Trump released last week did not address tax policy. During the campaign, he floated a proposal that would cap all tax deductions, including those for charitable gifts, at $100,000 for an individual and $200,000 for married couples. Mr. Trump also proposed increasing the standard deduction. Together those two provisions would sharply reduce or eliminate the tax benefits of charitable donations for millions of taxpayers.
House Republicans came up with a separate plan last summer that also would increase the standard deduction. Currently, about 30 percent of taxpayers itemize their deductions. The House plan would reduce that number to 5 percent.
“This will have a huge impact on giving,” said Sara Barba, senior government-relations associate at Urban Swirski & Associates, a lobbying firm that works with the Alliance for Charitable Reform. She said members of the House Ways and Means Committee, where tax bills originate, were aware of the potential impact on philanthropy.
“In the meantime,” she told foundation executives preparing to visit congressional offices, “other lawmakers need to understand this as well.”
Ms. Barba provided the grant makers with a calendar of suggested actions they can take. Next month would be a good time to write a letter to the editor of their local newspaper, she suggested. In May, lawmakers will return to their districts for two weeks, a good opportunity to get a message across face-to-face.
Tax Trade-offs
Congress plans to deal with health care before diving into taxes. Sandra Swirski, the executive director of the Alliance for Charitable Reform, predicted tax policy will conclude with a Christmas White House signing ceremony.
Despite widespread support for the charitable deduction among lawmakers, factors could arise during the tax debate that would create pressure to curtail it, said Ms. Swirski, a partner at Urban Swirski & Associates. For example, if the Joint Committee on Taxation provides an unfavorable estimate of the Republican tax bill’s impact on the deficit, lawmakers could go hunting for revenue by curtailing certain tax breaks, like the charitable deduction.
She also warned that to win over conservative lawmakers, Republican House Speaker Paul Ryan of Wisconsin might have to offer sweeteners, like repealing the 63-year-old law that prohibits nonprofits from endorsing political candidates, which Mr. Trump supports.
Many foundation leaders oppose eliminating the Johnson Amendment, as it is called, saying it would undermine public confidence in nonprofits.
“There’s strength to be seen as a neutral problem solver,” said Delia Coleman, vice president for strategy and policy at Forefront, an Illinois donor and nonprofit membership organization. “That disappears when you’re seen as a political arm.”
Lawmakers seem to think someone else will step up to the plate to fill the gap government is leaving, That is completely unrealistic.
Kyle Penny, president of the East Texas Communities Foundation, sees it differently.
Perhaps, he said, religious institutions could be exempted from the Johnson Amendment. That “carve-out,” he said, would protect the freedom of speech of pastors, who have long complained about the rule.
“That guy is paid to tell his opinion about things and about his interpretation of Scripture,” Mr. Penny said.
While some foundation leaders expressed angst about Mr. Trump’s proposed cuts in domestic spending, Mr. Penny said the federal deficit needs to be reduced. While a reduction in federal spending would force local communities to raise more money for their needs, it would also give them more say in how to allocate their resources, he argued. But that would only be true, he said, if the charitable deduction is left intact. Otherwise, communities will not be able to raise enough money to keep up with the needs of residents.
“Those cuts have got to come from somewhere. “We’d be wise to encourage our nonprofits to get the message out to donors. Communities have to step up.”
Filling the Gap
Aaron Dorfman, president of the National Committee for Responsive Philanthropy, was disappointed that the trip’s organizers focused on a narrow portion of the tax code that is directly relevant to charities. Participants in the Capitol Hill trip should have been encouraged to talk about a broad slate of policy issues and should have been prepped to talk about other tax issues, such as a promise Mr. Trump made to repeal the estate tax, which Mr. Dorfman said would decrease charitable giving.
“They’ve conceded that it’s going to be a done deal,” he said, referring to the effort to eliminate the estate tax.
In response, Ms. Swirski said the Alliance for Charitable Reform is focused on where it can have the most impact. While foundations and nonprofits work in a broad spectrum of policy areas, the one thing many agree on is the importance of the charitable deduction.
Mike Halligan, executive director of the Dennis and Phyllis Washington Foundation in Missoula, came to Washington for the Capitol Hill visit for the ninth time. Unlike in previous years, big changes in tax policy are a distinct possibility, he said.
To effectively communicate both the value of the charitable deduction and what he sees as the devastating impact the Trump budget proposal would have if it were enacted, Mr. Halligan planned to stress the roles government and the private sector have in working with each other.
“Lawmakers seem to think someone else will step up to the plate to fill the gap government is leaving,” he said. “That is completely unrealistic.”
