The New Tax Legislation: Implications for the Third Sector And What It May Mean for Jewish Philanthropy
By Steven Windmueller, Ph.D.
As the President’s tax proposals received final approval, what are the implications for the nonprofit sector and more directly, the Jewish community?
Michael Thatcher, chief executive of Charity Navigator, noted in a recent interview that the change in the standard deduction is “the biggest cause of concern.” However, nonprofit executives remain uncertain as to new legislation’s impact on fundraising. According to the Tax Policy Center, more than 46 million households would be expected to itemize in 2018 under existing tax laws, but these numbers could drop to under 20 million with the new tax provisions. Uncertain about whether they can deduct a contribution next year, some donors may be more generous during the closing weeks of 2017, providing charitable groups with an unanticipated upturn in their year-end fund-raising.
According to Pam Norley of Fidelity Charitable, some donors may be waiting to see the final bill approved by President Trump before making a decision about the size of their current year donations.
In connection with the proposed legislation, donors who itemize deductions may claim a deduction for gifts totaling up to 60 percent of their adjusted gross income (AGI), representing an increase from the current 50 percent. This is seen as an incentive for wealthier donors to give more and to satisfy multiyear pledges more rapidly.
However, the percentage of taxpayers who will probably itemize is expected to fall substantially under the new law. Currently, about 30 percent of individual federal tax returns are itemized; under the new law, if passed, that number may be as few as five percent. This will result in a $13 billion annual reduction in gifts to charity, according to some philanthropic experts, while others are forecasting losses as high as $20 billion.
Andres Spokoiny, President and CEO of the Jewish Funders Network concluded:
“The consensus among experts is that when all is said and done, it will be detrimental for charities and philanthropy.” Spokoiny continues: “the counter argument is that if this plan works as its proponents suggest, people will have more money in their pockets and they may give more (to charity). It also may create more jobs, which will mean more money in the market and less need for welfare services… but it’s hard to gauge because changes in the bill could change the impact.”
Impact on Social Services:
“For charities who serve families in need, the projected declines in giving will devastate our ability to provide food assistance,” observed Diana Aviv, chief executive of Feeding America, a network of food banks.
Compensation Packages for Nonprofit Executive Salaries:
The excise tax paid by nonprofit employers on high nonprofit executive salaries is set at 21 percent (the corporate tax rate) in the conference report, but compensation for medical services provided by doctors, nurses, and veterinarians is not included. This change would bring nonprofit salary taxation in line with longstanding tax policy governing for-profit corporations.
Among the new tax proposals is a recommendation to lower the interest rates for tax-exempt bonds, benefiting nonprofit institutions by reducing their borrowing costs.
What ‘s Not Included?
The repeal of the Johnson Amendment, related to political campaign activity by charities and religious groups, has not been included with the Conference Report.
The latest version of the tax bill also does not include additional reporting requirements for donor-advised fund sponsoring organizations. The House bill would have required community foundations and other DAF sponsors to add information to their IRS Form 990 filings detailing the average amount of grants made during the year (in terms of percentage of assets) and whether the organization has a policy with respect to donor advised funds relating to the frequency and minimum level of distributions from their funds.
The conference bill also does not include the House language that would have made interest on “private activity bonds” taxable. NPQ (Nonprofit Quarterly) reported on this provision, which some experts believed, would have increased nonprofits’ cost of borrowing for capital projects by as much as 35 per cent.
The conference report does not include the proposed change in the House bill that became known as the “Newman’s Own” issue. In one of the earlier iterations of the tax bill would allow foundations like that established by the late actor Paul Newman to finance philanthropic giving using profits from business operations of companies they own. Unless current tax law is changed, the IRS will begin imposing a 200 percent excise tax on the foundation in November 2018, forcing the foundation to sell its food company and dismantle the foundation.
House Ways and Means Committee Chair Kevin Brady (R-PA) indicated that a “technical corrections bill” would be drafted in 2018 once the tax bill passes to clarify and correct any additional items in connection with the new legislation.
Jewish Philanthropic Factors:
Writing only a few days ago on these pages, Hanna Shaul Bar Nissim of Brandeis noted:
The U.S. Jewish community not only gives more than other religious groups, it gives differently. Jews have developed unique patterns of charitable giving and philanthropic behavior as a central way to express Jewish identity. These unique organizations exemplify the ethnic, nonreligious expressions of Judaism. They also demonstrate the Jewish community’s tradition of charitable giving as a group effort.
She continues, “I found that many of these U.S. and Canadian institutions actually give more to non-Jewish causes than to Jewish ones. In fact, my preliminary findings suggest that despite differences between distinct categories of grant-makers, at most an average of 25 percent of this money backs Jewish causes.
Bar Nissim has suggested in her study “that these various philanthropic efforts give more than $9 billion every year to charitable causes.”
Impact on American Jewish Philanthropy:
Indeed, it may well be too early to make such an assessment, and if Hanna Shaul Bar Nissim’s observations are correct, is it possible to suggest that other factors than the new tax law will continue to drive Jewish giving in the years ahead.
Steven Windmueller Ph. D. on behalf of the Wind Group, Consulting for the Jewish Future. Dr. Windmueller’s collection of articles can be found on his website: www.thewindreport.com.