Getting Serious About Tax Reform
Comprehensive tax reform remains on track despite the political scandal involving the Internal Revenue Service and the looming debt limit debate, according to the chairmen of the two tax-writing committees in Congress. Senator Max Baucus (D-MT), chair of the Senate Finance Committee, stated that he thinks the IRS “revelations are frankly helping to spur and help people realize the need for reform.” He has also suggested tax reform could be linked to raising the debt ceiling as a potential compromise to prevent a government shutdown. Representative Dave Camp (R-MI), chair of the House Ways and Means Committee, has indicated that Republicans hope to include a tax overhaul and possible changes to entitlement programs in a deal to raise the debt limit, which is likely to be negotiated in September or October. To keep momentum moving forward on comprehensive reform, Baucus and Camp plan to make joint appearances across the country to promote a tax overhaul, as they also host several bipartisan, bicameral lunches for rank-and-file members.
As part of the tax reform investigation, the Senate Finance Committee recently released a staff report on tax-exempt organizations and charitable giving that reviews current law and the many alternative proposals on the table. The report, the ninth in a series by Committee staff, presents reform options in four broad areas: the charitable deduction, the taxation of business activities of nonprofits, the political activities and lobbying of tax-exempt organizations, and a final catch-all category of broad tax-exempt issues. Notably, the paper sets aside the fundamental question of “whether any revenues raised by tax reform should be used to lower tax rates, reduce deficits, or some combination of the two.”
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Sequestration Spotlight
Impact on Older and Younger Americans
Sequestration – the arbitrary, across-the-board spending cuts enacted by Congress when it couldn’t reach agreement on a rational deficit reduction plan – is imposing measurable harm to programs serving older and younger Americans. Seventy percent of Meals on Wheels providers report being forced to reduce the number of meals served to elderly people as a result of sequestration, according to a nationwide survey conducted by the Meals on Wheels Association of America (MOWAA). Individual programs are cutting an average of 364 meals each week and waiting lists for meals have increased by an average of 58 seniors, according to the survey. Likewise, children across the country are losing access to early education. Sequestration cuts are pushing 70,000 children out of Head Start classrooms, 20 percent more than federal authorities originally anticipated. InMassachusetts alone, 1,359 fewer children will benefit from Head Start services compared to last year. The National Council of Nonprofits is collecting stories from nonprofits affected by sequestration and other cuts at www.GiveVoice.org to help nonprofit leaders relay to policymakers the human consequences of sequestration – consequences that could be felt for decades.
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North Carolina Tax Debate Splits on Treatment of Nonprofits
Nonprofit tax exemptions and charitable deductions are very much at the center of the debate over tax reform in North Carolina, with the House and Senate split over whether and by how much to undermine the ability of charitable nonprofits to succeed in serving local communities. The House-passed tax reform plan would cap all itemized deductions but expressly preserves the charitable giving incentive. The bill maintains current sales tax exemptions for all charitable nonprofits, including arts groups, but repeals the current tax credit for individuals who do not itemize deductions. The House bill is now in conference committee with a more severe Senate tax package that would cap the charitable giving incentive and limit sales tax exemptions for many nonprofits, while reducing individual income tax rates and phasing out corporate income taxes. The Senate bill would also eliminate the tax credit for non-itemizers, cap sales tax refunds beginning July 1, 2017 for nonprofits paying $100,000 or more in sales taxes, and require nonprofit arts groups to charge sales tax on admission fees, among other things. The North Carolina Center for Nonprofits has developed a comparative chart and other excellent resources for understanding the issues and taking action to oppose these harmful measures.
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Government-Nonprofit Contracting News
- Texas Governor Perry signed legislation creating the Texas Nonprofit Council, which will work with the Interagency Coordinating Group of state government agencies to strengthen collaboration between government and the nonprofit sector. The Texas Association of Nonprofit Organizations was a strong advocate for the legislation and will remain active in promoting efficiency and cost savings that benefit taxpayers, as well as nonprofits and the people they serve.
- The Iowa Nonprofit Collaborative has commissioned a study of government-nonprofit contracting practices in the state. The survey goes into detail looking at the effectiveness of RFP processes, performance measurement, payment for services, and other relevant issues.
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States Diverge on New Corporate Forms
State legislatures in recent years have considered various proposals to change the rules governing for-profit enterprises to enable greater socially-focused activities. Last week, Nevada joined the list of states that recognize benefit corporations, a new for-profit corporate form that clarifies fiduciary responsibilities of board members to recognize that both social benefit and profits are appropriate concerns. In North Carolina, lawmakers reversed course on low-profit limited liability corporations (L3Cs), repealing legislation passed in 2010 allowing their formation; the legislation awaits the Governor’s signature. L3Cs are another recent form of for-profit entities with social interests that are allowed to seek funding from private foundations. Existing North Carolina L3Cs would be grandfathered in the legislation.
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New Disclosure Requirements for New York Social Welfare Groups
New York Attorney General Eric Schneiderman approved newtransparency standards and regulations for the electioneering activity of 501(c)(4) social welfare groups. Under the rules that took effect on June 5, social welfare nonprofits are required to report their political spending and itemize their activities if the total exceeds $10,000 per year. Social welfare organizations active in elections with expenses of more than $10,000 are also required to list large donors who gave more than $1,000, ending the anonymous flow of money into political campaigns via these groups. Attorney General Schneiderman hopes New York will serve as a model for similar regulatory reforms elsewhere. Charitable nonprofits organized under Section 501(c)(3) are prohibited from engaging in election-related activities and are not affected by the new regulations.
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Additional Articles on National Council of Nonprofits Website
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Earning Respect, Even in Opposition
An intense, grassroots campaign led by the Maine Association of Nonprofits inspired legislators to reject an amendment that would have imposed a two-year, two percent tax on nonprofits with $500,000 in assets and annual gross receipts of $200,000. However, the goal of the proposal to levy taxes on certain nonprofits remains intact and has been inserted in the state’sbiennial budget as a study. The measure would create a task force to review the feasibility of imposing taxes, fees, or payments in lieu of taxes (PILOTs) on certain nonprofit organizations, with the goal of generating approximately $100 million in revenue annually. A representative of the Maine Association of Nonprofits would be one of four stakeholders serving on the task force, demonstrating that standing up for mission and fellow nonprofits engenders respect from policymakers, regardless of their policy goals.
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- Tax Reform: NC
- Government-Nonprofit Contracting: IA, TX
- New Corporate Forms: NV, NC
- Electioneering Disclosure: NY
- Nonprofit Independence: ME
- Solicitation Regulations: NV, OR
- Fees: MD
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Worth Reading
Federal Contracts and Grants for Nonprofits, Sarah L. Pettijohn, Urban Institute Center on Nonprofits and Philanthropy, May 2013, an issue brief explaining the variety of funding mechanisms used by the federal government to pay nonprofits to deliver services for the government.
Legislative Review 2013, Pew Charitable Trusts State and Consumer Initiatives, June 14, 2013, a five-part series byStateline on legislative developments so far this year in the states, focusing on politics, health care, taxes and budgets, social issues, and economic development.
Worth Quoting
“New York is home to many of the most effective, innovative and influential charities in the world. The state's nonprofit sector generates close to $200 billion in economic activity each year. In this difficult economy, nonprofits create jobs; they employ more than one in six New York workers, from scientists to social workers.”
New York Attorney General Eric Schneiderman, Crain’s New York Business, June 16, 2013, making the case for regulatory reform legislation.
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