Washington – Both the tax bill the Senate hopes to vote on this week and a House-passed tax overhaul would keep the popular charitable deduction, but non-profits say the legislation still would shrink American help to those in need.
CT Community Nonprofit Alliance President Gian-Carl Casa says the bills would “devastate” the state’s community based non-profits.
“This is a significant problem for non-profits,” Casa said of the GOP tax bills.
The main reason?
The tax bills in both the House and Senate would eliminate most individual deductions, and nearly double the standard deduction. That means taxpayers may stop itemizing their deductions – and have less of an incentive to give to charity.
According to the Internal Revenue Service, more than 720,000 Connecticut taxpayers itemized deductions in 2015. Most of them, 603,420, claimed a charitable deduction. That’s nearly 35 percent of the state’s income tax filers.
But by simplifying tax brackets and doubling the standard deduction, the number of taxpayers who choose to itemize – and use the charitable tax deduction – is expected to drop to 5 percent, according to the CT Community Nonprofit Alliance and analyses by national non-profit groups.
A study commissioned this year by Leadership 18 and the Independent Sector, an alliance of the CEOs of the nation’s largest non-profits, found that these changes could decrease charitable giving by an estimated $13.1 billion annually. (Full disclosure: The Connecticut Mirror is published by the nonprofit Connecticut News Project.)
The heads of the nation’s largest nonprofits, including the American Red Cross, the American Cancer Association, the Boy Scouts and the YMCA, want Congress to allow all tax filers to be able to take the deduction, not just those who itemize. But the GOP writers of the House and Senate tax bills have yet to make that change
The issue is of concern to smaller nonprofits, too.
Jeff Grant, executive director of Family Re-entry, a criminal justice non-profit, said he’s concerned there’s less incentive for people to donate to his organization under the GOP tax bills, universally opposed by Democrats.
Grant said about half of $700,000 a year his group receives from private donors comes from individuals. The bulk of the group’s income, about $4 million, comes from state and federal grants.
But to Grant, it’s the private donations that give his criminal justice programs flexibility. Family Re-entry has offices in Bridgeport, New Haven, Norwalk, Stamford, Waterbury, Derby, Norwich and New London.
“We believe that’s the way we can have the most impact and create the most creative programs,” he said of the individual donations.
Also, as state and federal grants become more scarce, private donations are becoming more important, Grants said.
Both the House and Senate tax bills would lower the top corporate rate from 35 percent to 20 percent and lower rates for individuals, too. But they would eliminate many popular individual deductions, including the ones for state and local taxes and for interest on student loans.
Even as GOP crafters of the tax bill were careful to keep the charitable contribution deduction, which turns 100 years old this month, the worry about the disincentive to itemize in the tax plans has spread in the nonprofit community.
“It’s a scary proposition for us,” said Alice Forrester, CEO of Clifford Beers Clinic, which provides mental health care for thousands of children and their parents in the New Haven area.
Forrester said she’s concerned that some loyal donors who contribute less than $1,000 a year may stop giving or donating less. She’s also worried the disincentive to itemize will hurt efforts to attract Millennial donors and start them down the philanthropic path.
There are other concerns, too, said Casa of the CT Community Non-Profit Alliance.
One is that the House tax bill would repeal the Johnson Amendment, a provision in the U.S. tax code that since 1954 has prohibited certain non-profit groups from endorsing or opposing political candidates or donating to candidates for public office. The prohibition applies to Section 501(c)(3) organizations, the most common type of nonprofit in the United States, ranging from charitable foundations to universities and churches.
Casa said the end of the Johnson Amendment would pressure many non-profits to give to political candidates, siphoning off money now spent on helping people.
To Forrester, having charities become political players, forcing them to choose one candidate over another, would hurt them in other ways as well.
“It’s very important for us to stay neutral,” she said. “We depend on government to support us, no matter who is in charge.”
She also said her clinic has a politically diverse staff, and politically diverse patients, “so it would be horrible to be affiliated with a political party.”
Another problem nonprofits have with the tax bills is that they would boost the deficit by at least $1.5 trillion, forcing future cuts in government spending on social and health programs that help fund many nonprofits, Casa said.
“It’s hitting nonprofits from all angles,” Casa said of the tax bills.
Senate Majority Whip John Cornyn, R-Texas, said GOP leaders plan to vote on the Senate version of the tax bill this week, then work out the differences between that bill and one passed by the House earlier this month.
But the White House this week indicated the House may be persuaded to vote on a Senate-approved bill so that a final bill can become law before Christmas.