Charities and foundations are lucky. Too often their self-interest and the public interest may seem to be in conflict. But that’s not the case as the Republicans seek to overhaul the tax code. Nonprofits and average Americans alike have lots to lose, so it’s urgent that organizations stand together and oppose the measure on behalf of the people and causes they serve.
The GOP plan seeks to transfer more than $1.5 trillion away from public purposes, away from government and charities, to further enrich fantastically wealthy people and corporations. Far fewer benefits would go to middle-class people — and some of them would be left worse off.
Adding to the challenge of this “tax reform” effort is the damage that the measures would do to health-care payments for the neediest: Republican leaders want to finance their scheme in part through cuts to Medicare and Medicaid, while President Trump and the Senate hope to use the tax measure to kill Obamacare.
The basics of the Republican tax plan are clear for charities and others. A proposal to increase the standard deduction — and to greatly limit the use of charitable deductions — would decrease donations by over $13 billion a year. Changes in the estate tax, which the House proposes to repeal and the Senate to double the amount exempt from any levies, would also have a devastating impact.
When a one-year hiatus in that tax was in effect bequests dropped by over a third; repeal would cost the Treasury over $270 billion that might otherwise fund critical needs over a decade. Yet Republicans propose to allow the top one-fifth of one-percent of Americans — the very wealthiest 0.2 percent — to keep that money, even though most of it has never been taxed and never would be.
Simply put, the various tax policies being pushed in the House and Senate, and by the president, would very significantly cut charitable donations and otherwise harm nonprofits as a means to finance giveaways to Americans who already have the most.
Charities and Partisan Coercion
Why are Republicans willing to do so much harm to charities and ordinary people? Because, as candidly admitted by politicians themselves, wealthy CEOs and their partisan donors (often one and the same) demand it and have even threatened them if they fail to deliver. As a harbinger of worse things to come should the House’s policies pass, some political nonprofits are spending over $40 billion to push those interests.
In a further move to serve their self-interests, House Republicans would repeal rules that now bar charities from engaging in partisan political activity.
As donors start using tax-exempt charities to fuel their own partisan causes and shift political contributions to them, the Treasury would lose over $2 billion and organizations would become embroiled in terribly divisive struggles. They would also be much more open to coercion by their donors — and by government contract and grant officials — to take their partisan political positions or face adverse consequences.
Access to Education and Health Care
Other provisions in the House or Senate tax measures would harm certain charities and those they serve in other ways.
One proposal would tax the earnings of particular charitable endowments: those of large universities. This would cost charities over $3 billion, money that otherwise might be used for student financial aid. The measure could also open the door to extending such policies to other charitable entities and funding streams.
Related proposals would hurt university students more broadly and more directly. The deduction for student-loan interest would disappear, potentially devastating about 12 million Americans. Student tuition waivers would be taxed. All in all, another $65 billion would be taken away from students to finance Republicans’ money grab, supporting regressive policies that would exacerbate inequality and make it harder to realize economic opportunity and the American Dream.
Under another Republican proposal, universities, hospitals, and other charities would no longer be able to finance facilities through tax-free bonds issued by state and local governments, thus raising the cost of education and health care by close to $40 billion.
School teachers’ deductions for supplies they buy for their students would disappear, although that only covered the first $250 each spent. About 9 million Americans ill enough to claim medical-expense deductions, many of them served by nonprofits, will likely be sick longer with the transfer of over $180 billion in tax benefits to the wealthy and to large corporations (as contrasted with small businesses).
Older Americans would be hurt the most.
For the first time, besides being taxed on their unrelated business activities, charities would find certain of their practices subject to fiscal disincentives. Compensation of over $1 million paid to any staff member would be subject to an excise tax.
Meddling With Nonprofit Management
While some people might favor this to discourage what they see as an excess in the use of charitable dollars, others forcefully argue that:
- Without competitive salaries, nonprofit hospitals and similar entities today will be unable to attract the people they need to lead them.
- Government ought not impose such penalties on nonprofits without commensurate action on corporations that drive up executive compensation to egregious levels many times higher than people’s average wages.
- It is a terrible precedent for politicians to decide which charitable practices they like or don’t like and to use tax policy to enforce their will.
Still other policy provisions would dramatically affect subsets of Americans. While capping the deduction for mortgage interest would likely hurt those with more expensive homes, House Republicans don’t seem to mind that this new limit would most harshly penalize taxpayers in cities with the highest costs of living — where people generally vote Democratic. So, too, the Senate’s plan to eliminate the deduction for state and local taxes; that as well would most heavily punish those living in generally “blue” localities.
As complex as tax measures pushed by Congress and President Trump may be, they clearly work to the detriment of charities and the public. While Republicans tout their efforts as directed to benefit the middle class, even Senate Majority Leader Mitch McConnell had to admit that for 25 percent of people in that category, these proposals would result in tax increases. It is people like President Trump who would benefit the most: He is projected to save at least $1 billion as a result of the measures wending their way through Congress.
No matter which of these specific proposals survive initial votes in the House and the Senate, the guiding ideas in the current tax plans would be ruinous for the nation. Charities and organized philanthropy need to protect themselves from the avarice of Congress and the White House and defend the people and the planet by speaking up now.
Mark Rosenman is a professor emeritus at Union Institute & University.
