With the President-elect now officially confirmed through the Electoral College vote and expected to take office on January 20, 2017, there is cause for concern among nonprofit organizations as to what impact the administration’s proposed tax plan will have on charitable giving. Specifically, the tax plan proposes to place limits on itemized deductions (including the charitable deduction), to increase the standard deduction, and to repeal some of the tax-related elements of the Affordable Care Act, which currently provides funding for human-service groups, health-care organizations and colleges, organizations typically receiving substantial government grants and contracts.
Items which potentially could have a major impact on nonprofit organizations include the following:
- Repeal of the estate tax – would have a significant impact in lowering major gift giving. From an advocacy standpoint, what group will step up and try to stop this from happening?
- Lower income tax rates and caps on itemized deductions – such reductions would diminish the value of the charitable deduction and likely lead to a drop in charitable giving. Estimates predict a reduction in charitable giving in the range of 4-½% to 9%.
- Tax on endowment earnings over a certain threshold – The president-elect was critical on the campaign trail of nonprofit colleges and universities for amassing large endowments while increasing tuition costs, vowing to work with Congress to alter tax breaks or federal payments if institutions do not make good faith efforts to reduce costs for students. As some of the endowments at larger organizations continue to grow, there is an effort to enact some type of legislation which would tax earnings of endowments over a certain threshold. This again would potentially lower major gift giving.
What action can nonprofits take?
With the drafting of tax legislation expected to take place sometime in the spring of 2017, it is still too early to know all of the players that will be involved and their respective positions. While lobbying groups are gearing up, we won’t know of any specific actions until the proposed legislation is introduced.
In the meantime, nonprofits should be calling their elected officials, reminding them of the importance the charitable deduction plays in financing the work of nonprofits. Charitable organizations need to rally together to engage in advocacy at all levels and branches of government, ensuring that elected officials understand the impact policy proposals will have on the often vulnerable communities served by nonprofits.