Washington Snapshot - August 15, 2013

It's August recess and time to look at "Tax Reform, the Big Picture"

Washington has been quiet these past two weeks with lawmakers back in their home states, but that doesn’t mean that the debate on tax reform has quieted down. This week we’ve seen both scrutiny and thoughtful analyses on big picture issues. This illustrates that academics, policy experts and lawmakers continue to grapple with the complexity of reforming the current tax code.

The week started with Senator John Cornyn (R-TX) questioning the commitment of the Administration and Majority Leader Harry Reid (D-NV) to tax reform.

In his Washington Post essay this week, noted columnist George Will weighed in on Finance Chairman Baucus’ (D-MT) continued determination to get tax reform done and the complexity of such a massive legislative undertaking. Howard Gleckman provided some in-depth insight in the Christian Science Monitor on just how difficult it will be to make the numbers work. His piece is a reminder of what we already know very well - lower tax rates can only be achieved by making huge cuts in programs or deductions. Those will be tough decisions to make. You’ll remember in last week’s Snapshot, Gleckman had a great summary of the ups and downs of the process so far. Also in that issue, we cautioned that any tax reform momentum could run up against the debt ceiling or the continuing resolution (the measure that keeps funds flowing for the government to keep its doors open). Politico weighs in on that scenario in their analysis this week: “Why Wall Street Should Worry.”

While some are focused on the "big picture" at least one Senator spoke about the charitable deduction:

Senator Susan Collins (R-ME) spoke at the “Eggs and Issues Breakfast” in Portland, ME last Friday. We were pleased to see that she took time to specifically address the charitable deduction. She first pointed out that while tax expenditures may add complexity to the tax code, some including the charitable deduction, “can promote behavior that benefits our society.” She went further to say, “It is estimated that charitable giving would decline by $5.6 billion per year if a cap were put on itemized deductions. Is reducing or even eliminating the charitable deduction compatible with reducing the size and scope of government? Who will step in to fill the void left by a shrinking government?”

Well then... what will happen when Congress returns in September?

We’re not going to make any predictions in this issue of Snapshot, but we thought you’d find this Washington Post cartoon amusing:

It may not be your summertime beach reading, but a Tax Foundation Study was released this week

The data signals that eliminating the charitable deduction hurts jobs and economic growth

The Tax Foundation issued a report this week that quantifies the economic impact of eliminating the charitable deduction. The findings, as reported in The Hill and the Nonprofit Times, reinforced the unique and vital role of the 100-year-old charitable giving incentive that fosters support for thriving communities and programs and services to help those in need.

According to the report, eliminating the deduction would raise revenue that would be quickly lost and compounded in the form of lost jobs and economic strength:

- Reduce GDP by $40 billion

- Reduce employment by 131,000 full-time workers

- Increase tax revenues by up to $39 billion

- Reduce hourly wages by 0.2 percent

Beyond those topline findings, the report also concluded that across-the-board tax cuts of 3.7% could stimulate job and economic growth enough to mitigate the negative impact of eliminating the charitable deduction.

As we reviewed the Tax Foundation study, we were reminded by our colleagues on the Charitable Giving Coalition of a great op-ed by Robert Sharpe that appeared in The Chronicle of Philanthropy last December entitled “Do the Math: Abolishing the Charitable Deduction Will Cost Charities Billions.” It echoes the Tax Foundation findings. Upon re-reading the piece, we wanted to bring it to your attention. It’s worth a look. Sharpe effectively argues that eliminating of the charitable deduction would have a disastrous effect on charities, and offers up some math to prove it.

Nonprofit Quarterly’s Rick Cohen clearly spent a lot of time reviewing the Tax Foundation report, and as usual offered his interesting perspective. He notes that, while the report’s findings are interesting, we do a great disservice if we solely frame the charitable deduction in economic terms. He wisely reminds us that we cannot lose sight of speaking in terms of what nonprofit organizations – and donors who support them – do for families and communities. The nonprofit sector represents a vital infrastructure that should not be taken for granted.

The report is the last in an eleven-part series of Tax Foundation white papers, The Economics of the Blank Slate, created to discuss the economic effects of repealing various individual tax expenditures.

While we're talking about tax reform, let's not overlook the states

As many of our readers are keenly aware, several states have taken on tax reform this year. CNNMoney provides a great overview of North Carolina’s legislative session and notes that the new, simplified tax code retains the charitable deduction. It was the state’s first comprehensive tax overhaul in 80 years.

We applaud our colleagues at National Council of Nonprofits. Tim Delaney and his team have done amazing work monitoring state issues, providing guidance and encouraging engagement in states where tax debates could threaten various provisions, such as the charitable deduction debate in North Carolina. For more information on the great state-specific work of National Council of Nonprofits, please visit their website.

Congress may be in recess, but the IRS scrutiny continues to make headlines

We‘re committed to keeping our readers updated on the top-line developments in the IRS scrutiny, as tedious as this can get. In this issue, we can report that there were no big surprises, and the partisan ping pong continues. Last week, the Washington Post ran a column by the House Committee on Oversight and Government Reform Chairman Darrrell Issa (R-CA-49) and House Ways and Means Chairman Dave Camp (R-MI-4) outlining their perceived inconsistencies in IRS testimony. This week, the Post ran a response by Ranking Member of the House Committee on Oversight and Government Reform Elijah Cummings (D-MD-7) and House Ways and Means Ranking Member Sander Levin (D-MI-9) saying that reform is needed at the IRS, but should be accomplished without political acrimony.

August recess and the "Summer of Action": A time for inspiring op-eds

Kudos to a great op-ed from North Carolina

We have been delighted to highlight some strong and thoughtful opinion pieces in each edition of Snapshot. This week, David Heinen, North Carolina Center for Nonprofits, and Holly Welch Stubbing, Foundation For The Carolinas, co-authored an op-ed that ran in the Winston-Salem Journal. We know key lawmakers, such as North Carolina’s Senator and Senate Finance Committee member Richard Burr (R-NC) follow home state media. The great headline “Charitable Contributions Need Protection” keeps our sector’s priorities on the radar screen. The authors make their case with local and national data and sum up a main point clearly and powerfully: “ Any harmful tax policy changes to the charitable deduction will take away key building blocks that support communities and jobs and would set off costly and cascading consequences. Such a move would hurt those who need help the most.”

"Summer of Action" resources that you can use right now

We’ve informed our readers about the Charitable Giving Coalition’s “Summer of Action” web page in previous Snapshots, but did you know that this site offers an easily downloadable template that you can use to place an op-ed in your local newspaper (and then you can share it with us for Snapshot)?! Give it a try – you have an inspiring local story you can share to raise awareness of the importance of the charitable deduction at the national level. If the Council can help in drafting or placing your story, contact Brian Horn or anyone on our public policy team.

Catching up on some recent legislation

As Congress was heading toward August recess, Representative Mark Meadows (R-NC-11) introduced HR 2714, the American Conservation Empowerment Act which incentivizes charitable giving of land for conservation. Snapshot readers may recall that an enhanced deduction for conservation easements was one of the issues highlighted in Independent Sector’s tax reform priorities letter signed by more than 1,000 organizations, including the Council.

And recent guidance from the IRS

The Council reviewed the Department of Treasury’s 2013-2014 Priority Guidance Plan published August 9, 2013, and among the 324 priority projects identified for this year, we found the following items of particular interest to foundations: 1) additional guidance on Section 509(a)(3) supporting organizations; 2) guidance under §4941 (Taxes on Self-Dealing) regarding a private foundation’s investment in a partnership in which disqualified persons are also partners; 3) final regulations under Section 4944 on program-related investments; and 4) guidance regarding the new excise taxes on donor advised funds and fund management as added by the Pension Protection Act.

Additionally, Treasury intends to work on final regulations under Section 6104(c) addressing its obligation to notify state officials about an exempt organization’s failure to qualify as a Section 501(c)(3) charitable organization, failure to comply with certain tax reporting requirements, and generally sharing information between the IRS and state governments.

Please contact Suzanne Friday if you’re interested in additional information. As always, we’ll be monitoring these and other projects relevant to our members.

Interesting series of articles on the horizon

Huffington Post is beginning a series of blog posts on the state of philanthropic sector, the first of which ran Tuesday entitled “The Static State of Philanthropy.”

The authors, Marc Chardon and Hal Williams plan to draw on current research to understand why the percentage of giving per household isn’t growing. They cite Adrian Sargeant, co-author of a June 2011 report that came out of the Growing Philanthropy Summit who notes that "despite an increasing effort on the part of nonprofits, individuals today give no more than their predecessors did over four decades ago. Forty years of increasingly sophisticated fundraising practice, the development of planned giving vehicles, the appearance of the Internet, and the rise of new digital channels have done nothing to more the needle on giving. Yet, while giving has remained static, demands on the sector have not."

Finally, on a high note

Council Board Chair Kevin Murphy opines on his visit to Capitol Hill. Enjoy his blog post "Fighting for Charitable Giving" from the Council's website!

Keep in touch

Let us know how we are doing, or about any issue that you’d like to see highlighted in a future Snapshot, by touching base with any member of our government relations team.