Our newsletter this week is abbreviated due to ACR’s annual Summit for Leaders that occurred on March 5 despite Mother Nature’s attempt to unravel the travel plans of those attending. Our audience members heard from three panels whose presenters addressed the potential impact of tax reform on the charitable sector and encouraged more education of our elected officials about the damage that would be done to our communities by any diminution of private giving. A recap of of the Summit can be found here. Below are the opening remarks made at the ACR Summit by Adam Meyerson, president of The Philanthropy Roundtable.
On Tuesday, the President unveiled his $3.901 trillion fiscal year (FY) 2015 budget proposal, an election-year document aimed at addressing Democratic priorities in the run-up to the midterms. The document is loaded with idealism for the Democratic base, focusing on programs for economic opportunity and alleviating income inequality, paid for by more than $1 trillion in tax increases on high earners, multinational corporations, banks, and others. This document will have a short shelf life, since top-line federal spending levels for both FY2014 and FY2015 were set in the budget agreement signed into law at the end of last year. While the President’s budget adheres to these spending caps put in place in December, it also proposes $56 billion in additional spending priorities, divided between military and domestic programs. President Obama drops the cost-saving reforms to Social Security that he included last year and seeks new money for infrastructure, education, and job training.
Of note for the charitable sector, the budget once again calls for a 28 percent cap on all itemized deductions, including the charitable deduction, kicking in for individuals and families in the 33 percent, 35 percent, and 39.6 percent tax brackets. For the second year in a row, the President also called for a “Buffett Rule,” which would impose a minimum tax rate of 30 percent on individuals and families earning more than $1 million a year. Also like last year, a deduction for charitable contributions would be backed out before the Buffett Rule would be applied, but capped at the 28 percent level. The budget proposal also calls for a streamlined private foundation excise tax at 1.35 percent.
House Ways and Means Chairman Dave Camp (R-MI) released his much anticipated tax reform proposal last week, the “Tax Reform Act of 2014.” Camp’s plan touches nearly every section of the tax code and includes major changes to the income, corporate, and international tax systems. On the whole, Camp’s plan would:
- Condense the seven existing income tax brackets into two, with rates set at 10 and 25 percent, and create an additional 10 percent tax that applies to specific types of income above $400,000 for individuals and $450,000 for married couples.
- Increase the standard deduction, while eliminating the deduction for state and local taxes and repealing the personal exemption.
- Repeal the individual Alternative Minimum Tax (AMT).
Furthermore, an independent, non-partisan analysis by the Joint Committee on Taxation says the plan could have a substantial effect on the U.S. economy, generating an additional $3.4 trillion in revenue over the next decade and adding up to 2 million new jobs.
As for provisions that affect the sector, there were some WINS, but lots of problems. Learn more at ACR’s webinar on Tuesday, March 18 at 3pm EST. We’ll have subject matter experts walk you through Chairman Camp’s plan and explain implications. We’ll also have politicos speak about what this plan means for tax reform. More details on the webinar will be made available on our website next week.
After a preliminary analysis, the WINS are:
- Extending the deadline for eligible charitable donations to April 15.
- Simplifying the private foundation excise tax by consolidating the current two-rate structure into a single 1 percent flat rate. ONE OF ACR’S TOP PRIORITIES.
And among the problems are:
- Charitable deduction floor — Camp does keep the charitable deduction for all brackets, but with a floor of 2 percent of adjusted gross income (AGI). Only the amount given in excess of that floor would be deductible.
- The Camp plan also streamlines the upper limit for deductible amounts of cash gifts to 40 percent of AGI. So there are some winners and losers.
- Requiring donor advised funds to distribute contributions within five years of receipt. An eligible distribution is a distribution made to a public charity. Failure to make an eligible distribution would subject the sponsoring charitable organization to an annual excise tax equal to 20 percent of the undistributed funds.
- Limiting most contributions of property to basis, rather than fair market value.
Chairman Camp took on the difficult task of crafting comprehensive tax reform legislation and we applaud his commitment to this effort. While his draft isn’t perfect, his staff is committed to working with the sector on problem areas. And there’s plenty of time. The draft is a step in the process. In fact, Speaker John Boehner (R-OH) said it is time for a discussion about tax reform, but avoided answering questions about specific changes or the future of the draft.
In the Senate, both Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) affirmed the dismal prospects for comprehensive tax reform in 2014, with McConnell going as far as saying he has “no hope” for completing reforms this year. Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Orrin Hatch (R-UT) released a joint statement saying they will work “with Members in both chambers and on both sides of the aisle to move the conversation forward.” Wyden, however, also reaffirmed his focus on developing a tax extenders package that could serve as a potential bridge to larger tax reform discussions.
But Chairman Camp remains undeterred. Earlier this week, he said his Committee staff will continue to provide technical briefings for Ways and Means Members on the details of his plan. He also said he believes the Committee is “at some point going to have public hearings on this.” Camp did not indicate a specific timeline for these hearings.
ACR released a statement regarding Camp’s proposal, available here.
Both the President’s budget proposal and Chairman Camp’s the tax reform plan offer insight into how the Democrats and Republicans view the charitable sector. They provide tangible ideas for ACR and our colleagues to discuss and determine areas in which Members need more information. Even though neither document will gain significant traction on Capitol Hill, they could serve as the starting point for both parties when tax reform gets underway. We look forward to the opportunity to continue working with lawmakers as this process unfolds and we will continue to keep you up to date.
- Federal: Cap On Deductions Proposed Again
- Federal: Obama 2015 Budget Would Cap Charitable Deduction at 28% for Top Income Earners
- Federal: President Obama’s FY2015 Budget: Live Wire or DOA?
- Federal: Tax Aspects Of The President’s FY 2015 Budget
- Federal: Obama Sends Congress $3.9 Trillion Budget to Boost Growth
- Opinion: Camp Tax Reform Plan Gets Charitable Giving (Basically) Right–But Threats Still Loom
- Opinion: GOP Tax Reform Would Simplify Rates, Raise Revenue Via Higher Growth
- Local: Philanthropy Week — Implications for Local Charitable Investors
- ACR Blog: Live Blog: 2014 ACR Summit for Leaders
- Multimedia: Thune Questions Lew About Cap on the Charitable Deduction, IRS Compensation
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