Local nonprofits are calling on Congress to reject aspects of the proposed tax reform bill that address changes in charitable giving deductions, and non-profit status, saying they hurt their ability to operate at a time when many are losing state and federal funding.
The Senate is expected to vote on the tax reform bill Thursday.
The bill, as written, would change long-time tax policies that have helped support charitable nonprofits through tax incentives. Local and national non-profits fear the changes will lead to decreased revenues.
Although the bills retain existing deductions for charitable donations, both House and Senate versions make changes to the standard deductions that would drastically reduce the number of people who will itemize.
With the tax benefit of charitable giving no longer available to 95 percent of taxpayers, nonprofits in Connecticut and across the country believe that private donations will plummet and their work in communities will suffer, said CT Community Nonprofit Alliance President Gian-Carl Casa.
The Senate bill would roughly double the standard deduction to $12,000 for an individual or $24,000 for married couples. As a result, most middle-class households that take the standard deduction now would get a tax cut under the bill in 2018, and almost none would get a tax increase.
The story is very different for the roughly one-quarter of middle-class families that itemize deductions. The Senate bill would eliminate some popular tax breaks, including deductions for state and local taxes, and higher education costs. As a result, households that take those deductions now could lose out. In total, about 40 percent of households that itemize their deductions would pay more in 2018 under the Senate bill — in some cases a lot more, according to the New York Times.
The House legislation includes language to nullify the Johnson Amendment, that for 60 plus years has protected nonprofits with 501-C3 tax status from demands by candidates for public office and their operatives for endorsements, contributions, and other support.
The nonprofits believe, and a congressional agency confirms, that the change would result in billions of dollars of dark money being diverted to newly political charitable organizations because the donors could now receive a charitable tax deduction, Casa said.
“The impact of these proposed changes, coupled with overall reductions in state and federal funding that will likely result from adding $1.5 trillion to the federal deficit, would devastate nonprofits,” Casa said.
James Ieronimo, executive director of the United Way of Meriden and Wallingford, estimates that 150,000 individuals used the charitable deduction for charities in the greater New Haven area.
“Those are considerable figures,”Ieronimo said. “It’s a real concern to us on the larger scale.”
Ieronimo won’t say that taking the charitable deduction drives donations, however it is a consideration for many individuals and businesses.
Ieronimo explained his concerns at a recent United Way board meeting. The board agreed to sign a letter to Senators Christopher Murphy and Richard Blumenthal, both Democrats, opposing the changes.
Organizations such as the Community Health Center Inc. on State Street in Meriden recently started a charitable foundation to help offset costs in the wake of Medicaid cutbacks. CHC has 14 other locations in the state.
“We are watching it very closely,” said Lisa Gianelli, spokeswoman for the Community Health Center Inc. “This is something that could be very problematic.”
Unlike hospitals who receive funding from state, federal and private payers, the Community Health Centers provide services to many low-income patients and receive most of their funding from Medicaid. While its programs are available to all, the CHC is committed to the uninsured, underinsured, and key populations such as patients with HIV/AIDS.
The charitable giving foundation is another revenue stream to help cover cuts in state reimbursements.
The Nonprofit Alliance represents 400 health, social service, arts and culture non-profits in the state.
Repealing the Johnson Amendment would make non-profits vulnerable to pressure from political parties to make endorsements or contributions, something many existing non-profits are opposed to.
“It’s a foolish endeavor that we don’t want to take,” Ieronimo said. “Sounds like they want us to start taking sides.”
The nullification could also pave the way for the creation of partisan non-profits who can channel donations into a tax-free structure, and pressure non-partisan non-profits to pick a party.