Washington
Many nonprofit leaders are putting all their attention in the coming hours and days on Republican Sen. James Lankford as they seek ways to diminish some potential damage to giving that might result from the tax overhaul the Senate is expected to vote on this week.
Mr. Lankford drafted a bill that would expand the charitable deduction to everyone, a measure many fundraisers see as crucial to maintaining the flow of contributions to soup kitchens, art galleries, and other nonprofits.
“Time is definitely growing shorter,” said Brian Walsh, executive director of the Faith and Giving Coalition, one of several charity networks calling on Mr. Lankford to introduce his legislation calling for what is known as a universal charitable deduction as an amendment to the broader Senate tax bill. The House tax bill, passed this month, includes no such provision.
The Oklahoma senator’s office remained noncommittal Tuesday afternoon. According to a spokesman for Mr. Lankford, there “aren’t firm answers right now” about whether he would ask for the universal deduction to be included in the broader tax bill when it hits the Senate floor or offered as an amendment during debate. He added, in an email, that Mr. Lankford “would like to insert his bill into the final tax-reform bill, but that work is ongoing.”
And at least one major group representing nonprofits in Washington called Tuesday for a “no” vote on the Senate bill, regardless of whether Mr. Lankford’s proposal gets added to it. While Independent Sector, a national membership group of nonprofits and donors, favors Mr. Lankford’s universal deduction proposal, Jamie Tucker, the group’s director of public-policy strategy, cited the bill’s tax increase on lower-income households and a provision to increase the estate-tax exemption as problematic.
The legislation would double the estate-tax exemption, allowing couples to shelter up to $22.4 million from the tax. Charity advocates say that means many wealthy people would no longer have the incentive to give to charity as a way to avoid steep estate taxes on their heirs.
“As much as we’d like to see a universal deduction, we don’t think it would be enough for us” to get behind the broader tax package, Mr. Tucker said.
Few Would Itemize
Debate on the Senate tax bill could begin as early as Wednesday, and Republican Senate leaders have said they’d like to hold a final vote this week.
Like tax legislation that passed the House, the Senate bill would double the standard deduction taxpayers can use to reduce their taxable income.
With a larger standard deduction, fewer Americans would opt to itemize, and that would mean they would not be eligible to claim deductions for their charitable contributions. According to House GOP estimates, only 5 percent of taxpayers, concentrated among the wealthy, would continue to itemize their tax returns.
To encourage giving among Americans of all incomes, Mr. Lankford’s legislation would allow everyone to claim charitable deductions on their tax forms regardless of whether they itemize. Couples who don’t itemize would be allowed to deduct up to $8,000, assuming the standard deduction is increased as Senators have proposed; lower limits would apply to single people.
A similar measure to offer charitable deductions to all was unsuccessfully offered in the House by Rep. Mark Walker, a North Carolina Republican.
Nonprofit advocates said that because Mr. Lankford proposed his measure recently, they hoped that would help give it momentum now.
“It gave a lot of us some hope it would be in play,” said Sandra Swirski, executive director of the Alliance for Charitable Reform, a project of the Philanthropy Roundtable that has pushed for tax changes that encourage giving. “We’re still hopeful, but we don’t have any answers.”
Costly to Federal Treasury
Members of Ms. Swirski’s coalition have met with Mr. Lankford’s staff members to make their case. So has Neal Denton, chief government-affairs officer of the YMCA of the USA. And over the weekend, Marnie Taylor, president of the Oklahoma Center for Nonprofits in the senator’s home state traded texts with his aides urging him to push the universal charitable deduction as the Senate bill moves forward.
The biggest hurdle: cost.
Any changes to the bill during the Senate debate that would reduce federal tax revenue would have to include a way to offset those losses, Ms. Swirski said, making Senator Lankford’s measure a tough sell, especially among Republicans worried about a mushrooming budget deficit.
One of those GOP fiscal hawks is Senator Lankford himself, who has withheld support of the broader legislation out of a fear that proposed tax cuts wouldn’t yield as much growth as promised.
The Congressional Budget Office has not determined the cost to the U.S. Treasury of Senator Lankford’s universal-deduction bill. But a study this summer by researchers at Indiana University’s Lilly Family School of Philanthropy estimated a loss of $13 billion in tax revenue each year if a similar proposal was enacted. The same study found that without a universal deduction, increasing the standard deduction could result in a loss of $13.1 billion in charitable contributions.
“Senator Lankford has concerns that the tax-reform package adds a lot onto the deficit,” said the YMCA’s Mr. Denton. “If he’s going to talk about those concerns, this measure would add even more. It would be tough for him to make both arguments.”
Nonprofit lobbyists say they are worried that without the universal deduction, the number of middle-income and poor people who give could drop sharply. While wealthy people may make up for the loss of those donations, Mr. Denton worries that the kind of nonprofits that get support from the affluent — usually bigger institutions and donor-advised funds — are different from the small, grass-roots community groups favored by those of moderate means.
Politicking Ban at Stake
Even if Mr. Lankford successfully offers a universal-deduction amendment, other aspects of the tax legislation trouble nonprofit leaders. At the top of the list is a measure currently included only in the House bill that would loosen the Johnson Amendment, a measure that prohibits nonprofits from overt political activity such as endorsing candidates.
Mr. Lankford supports easing that regulation, a change long called for by some religious groups that want to give clergy members more leeway to support candidates from the pulpit. And the senator’s position on the issue has some questioning whether it might be used as a bargaining chip to gain Mr. Lankford’s “yes” vote.
It is not clear whether Mr. Lankford will also push for the Senate to follow the House’s lead on that provision. Some nonprofit groups, like the Faith and Giving Coalition, which counts religious organizations among its members, have not taken a side on the politicking rule Other nonprofit advocacy groups are dead set against changing current law. Allowing nonprofits to support candidates would erode the trust people have in charitable organizations, they argue, and invite unnecessary government scrutiny.
During a call with nonprofit leaders and reporters hosted by the National Council of Nonprofits, Amanda Tyler, executive director of the Baptist Joint Committee for Religious Liberty, said she fears Mr. Lankford will push to loosen the Johnson Amendment.
Doing so, she warned, could invite “troubling entanglement” by the Internal Revenue Service into the affairs of charities.
Nonprofits should be “really concerned about this change that is a small part of the bill but would have a really outsized impact on our sector,” she said. “The impact will be seismic.”
Impact on the Needy
The charitable deduction and the Johnson Amendment are only two items of a much broader tax bill. While there is a large measure of agreement among nonprofits for a universal deduction, many nonprofits are dismayed by the broader outlines of the bill, including its impact on low- and middle-income families.
Fighting for the charitable deduction is laudable, said Rachel Kerestes, vice president for external affairs at Lutheran Services in America, but it doesn’t make the rest of the tax package more palatable for nonprofits.
“We cannot in good conscience be out there leading a fight for the charitable deduction if that then helps support a bill that would devastate people who rely on Medicaid,” she said. “That feeds into this false narrative that the nonprofit sector is just going to step in and fill that gap.”
Megan O’Neil contributed to this article.
