Lawyers for nonprofit organizations panned President Trump’s tax plan on Thursday, calling the one-page policy document incomplete at best and potentially damaging to nonprofits that rely on charitable contributions.
“Tax policy is being directed in the White House by people who are not tax lawyers,” said Marcus Owens, a tax lawyer who served as the director of the Internal Revenue Service’s Exempt Organization Division for a decade. “It’s like a letter a small child would send to Santa in early December.”
The Trump administration touted its plan to keep the charitable deduction intact, tax experts noted, but they said other changes in the tax code envisioned by the White House, such as an increase in the standard deduction that would greatly limit the number of people taking charity write-offs and the elimination of the estate tax, seemed at odds with the goals of preserving tax breaks for donations.
The scarcity of specifics leaves a lot of questions. For instance, would Congress embrace a plan that seemingly wipes out tax incentives to give?
Particularly troubling to Mr. Owens and other tax lawyers who gathered at a conference in Washington hosted by the Georgetown University law school is that the proposal was released before the Trump administration had placed people in key tax policy slots at the U.S. Department of Treasury and the IRS. Ordinarily, the assistant secretary for tax policy at Treasury and the IRS chief counsel would provide input in crafting tax policy; both of those positions are vacant.
Dearth of Details
The Trump tax plan lacked substance, said Alexander Reid, a tax lawyer who represents nonprofits.
“It was a one-pager, double-spaced,” said Mr. Reid, a former lawyer for the congressional Joint Committee on Taxation. “We don’t have a lot of details.”
The scarcity of specifics leaves both donors and nonprofits with a lot of questions. For instance, would Congress embrace a plan that seemingly wipes out tax incentives to give?
Although Mr. Trump’s tax outline keeps the charitable deduction intact, the plan — like a Republican proposal circulating in the House — would double the standard deduction. Doing so would eliminate the tax incentive for making charitable gifts for all but the wealthiest 5 percent of Americans, according to tax experts. That’s because more people would claim the higher standard deduction rather than separately itemizing things like mortgage-interest payments and charitable gifts.
When people lose the government as a “partner” that uses tax policy to encourage giving, their gifts are smaller, according to Robert Collier, president of the Council of Michigan Foundations. Mr. Collier pointed to a 2013 study by the Johnson Center for Philanthropy at Grand Valley State University that showed that people gave less following a repeal of a state tax credit for donations to community foundations.
Coupled with Mr. Trump’s proposed cuts in domestic spending, any reduction in charitable giving would inflict serious pain on nonprofits, Mr. Collier said.
“The demands on the charitable sector are going to be off the charts at a time when we can ill afford to lose giving incentives,” he said.
Not a ‘Loophole’
During a panel at the conference, Mr. Reid asked Mark Warren, a tax aide to Sen. John Thune, a Republican from South Dakota, whether the increased standard deduction would snuff out charitable giving. During the last session of Congress, Mr. Thune introduced a bill that would call for his fellow lawmakers to express that it was the “sense of the Senate” that the charitable deduction be maintained in both value and scope.
Mr. Warren conceded that the sense of the Senate measure his boss has promoted might seem at odds with the White House plan. He said members of Congress see the charitable deduction as serving a meaningful purpose rather than as a tax “loophole.” But he said a range of considerations that affect the health of the country’s nonprofits need to be taken into consideration when determining the scope and value of the deduction.
Tax policy is being directed in the White House by people who are not tax lawyers. It’s like a letter a small child would send to Santa in early December.
A factor that makes predicting the impact of changes in the standard deduction difficult is that the thrust of the Trump tax plan is to increase economic growth. Doing so, Mr. Warren argued, would help nonprofits even if the charitable deduction applied to far fewer Americans.
“One of the biggest drivers of charitable giving is a strong and growing economy,” he said. “It is a challenge to balance all of those factors, which can be conflicting.”
Mr. Reid agreed that a growing economy would help charities. But if Americans were left with more money in their pockets after paying their tax bills, they still wouldn’t donate enough to make up for the loss of the tax incentive, he contended.
“The tax incentive is always greater than the wealth effect,” he said.
Mr. Owens, the former IRS official, was skeptical that Mr. Trump’s tax and economic policies would generate new wealth. Even if it did, he said, it might not immediately launch a new era of charitable giving.
“There may be a new Andrew Carnegie who springs up out of it,” he said, “but it would be another generation before that money is directed to charity.”
