111th Congress
Consider this…
There are various third rails in politics – things politicians don’t generally touch for fear of the backlash. Programs like Medicare and Social Security, farm subsidies, and veteran’s benefits.
And there are some third rails in the tax world as well. For years, Congress has implemented and extended popular tax deductions and credits for both individuals and institutions that have achieved a “sacred cow” status. The home mortgage interest deduction and the R&D tax credit are just two such examples…
Set this against our country’s current fiscal situation: Rising national debt and new public policy priorities… Suddenly, those sacred cows in tax world aren’t so sacred anymore.
Nonprofits are not immune from this debate – the charitable deduction is considered a tax expenditure… What does this mean for us?
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Consider this…
Unlike the federal government, every state except Vermont has some form of balanced budget requirement. What does this mean in practical terms for the future of philanthropy?
We all know that the economy has not been kind to state and federal budgets. At the federal level, the government has responded by pumping money into the economy, in the hopes of jumpstarting economic growth and in the process running up enormous deficits. But balanced budget requirements at the state level won’t allow that and as a result, states are in the hunt for revenue with a vengeance.
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Consider this…
Earlier this year, Congress passed a massive health care bill which is now law. In very short order, Congress is expected to approve a massive overhaul of the rules governing the financial services sector – known as the Wall Street Reform bill.
So you might ask why did the Senate spend nearly eight weeks and try multiple times to close off debate on a relatively modest package of tax provisions (about $12 billion a year over ten years) that aren’t new, are pretty popular, and are merely extensions of current law?
The short answer is 60 votes, concerns about deficit spending and controversy over how to pay for these tax provisions…Needless to say, House Democrats are not amused. What does this mean going forward?
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As of Jult 1, 2010 -
As we previously reported, the House and Senate have been working to reconcile the differences between their versions (H.R. 4173/S. 3217) of the financial regulatory reform legislation – the Wall Street Reform bill. Earlier this week, they completed their work which included important provisions that ACR and others worked hard to include (see letter from ACR and Nonprofit Coalition here). These provisions remove most nonprofits that offer charitable giving advice and group financial education from regulation, fees and oversight.
These provisions are a big win for the nonprofit community. Our advocacy efforts coupled with your examples about this bill’s impact on your day-to-day operations resonated with Members of Congress.
A final financial services reform conference report must now be approved by both the House and Senate. We expect the House and Senate to pass the final bill shortly.
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Consider this…
You know the old adage that death and taxes are the only sure things in life? Well for the time being at least one of those certainties is in question – on January 1 of this year, the tax on estates disappeared and went to zero. That’s right, zero.
So Congress must be working night and day to resolve the issue right? Wrong. With half of 2010 behind us, there is no clear plan to deal with the estate tax.
Why? Keep Reading…
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Background:
Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) continue to work on an estate tax package that would include a higher exemption and lower rate. This requires the senators to identify means of raising federal revenue to make up the revenue loss associated with this plan. They have been in intense negotiations to work out a compromise deal that would get the approval of Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA). Though several sources had indicated that a deal was shortly forthcoming, it appears as though the process has hit yet another roadblock.
It is likely that discussions on the estate tax will continue, but less publicly. As Congress continues to debate how to address the estate tax, ACR staff will closely follow these discussions, due to concern that foundations could be used as a “pay-for” for any eventual estate tax legislation.
Update
As of June 18, 2010 - Last week, Senator Chuck Schumer (D-NY) tried unsuccessfully to add his legislation to flatten the PF excise tax rate to 1.39% to the Tax Extenders bill being debated by the full Senate. What was the stumbling block? As the Chronicle of Philanthropy reports, Senator Charles Grassley (R-IA) submitted a letter calling on the Council on Foundations (COF) to provide additional data about the need for the legislation and its impact on foundation grantmaking. Specifically, Senator Grassley questioned whether this legislation would actually result in charities getting more funding, saying “[f]lattening the rate without mandating that the tax savings be paid out seems like it’s rewarding those who just do the minimum while hurting those who go above and beyond what’s required.”
COF responded quickly, but the inquiry by Senator Grassley likely precludes Senator Schumer’s legislation from being ultimately added to the tax extenders bill. We expect Senator Schumer to continue to try and add this legislation to future tax bills.
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Consider this…
If ever there was a year to think about upping your charitable giving, this is the year.
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Consider this…
Why are we still talking about Congressional proposals to limit the charitable deduction? Hasn’t this issue been put to bed?
Washington is in an unprecedented revenue hunt. And from a policymakers’ perspective, the revenue cupboard is empty. The House and Senate can’t find $30 billion to pay for a tax package that includes the IRA charitable rollover. They would like to pass a small business tax bill but they don’t have the money for that either. And they really don’t have the $100 billion-plus they need to prevent the tax on dividends from jumping from 15 to over 40 percent.
Enter the charitable deduction. It is a tempting target. The Obama Administration is already on board with capping the deduction at 28 percent. Others want to keep the deduction at the current maximum of 35 percent, even AFTER the top rate is expected to float back up to 39.6 percent in 2011. These limits would raise billions. And billions is what Congress desperately needs. But at what cost? Both studies and anecdote suggest that a cap on the deduction could chill charitable giving.
So, that’s why we’re still meeting with Members of Congress. They are desperate and we are a tempting target.
What are your thoughts? Submit a comment to our staff at .(JavaScript must be enabled to view this email address). Your message will NOT be posted or distributed publicly.
Consider this…
Washington is abuzz with talk of a value added tax (VAT)***. Paul Volcker, the former Federal Reserve Chair and current White House economic advisor, has proclaimed a VAT “not as toxic an idea” as in the past. The head of the Congressional Budget Office rather mysteriously alluded to the fact that unnamed members of Congress were interested in a VAT and that he expected to look more deeply into it. And the President himself, in an interview in late April, refused to take the idea off the table.
Amidst all of this talk, the Senate voted 85-13 for a non-binding resolution opposing a VAT as a massive tax increase. The Shakespeare line about the lady protesting too much comes to mind.
The attractiveness of a VAT is simple: it raises loads of money and it can do so quickly, semi-invisibly and, some say, painlessly. Over 130 other countries already have some form of VAT in place. In the U.S. every percentage point of a VAT would raise $100 billion dollars a year- thus a ten percent VAT would generate an eye-popping one trillion dollars.
There are of course significant downsides: The tax is regressive, it can get complicated VERY quickly (consider that in Great Britain shrimp crackers made with tapioca are exempt from the VAT while shrimp crackers made with cereal are not) and it will discourage policymakers from taking a hard look at government spending.
Why is this a debate the philanthropic community should follow? Quite simply, every dollar in taxes - be they income taxes or a VAT, is a dollar that won’t be spent on private philanthropy. We plan to follow this debate as it unfolds and be sure that key policymakers are aware of the impact such a proposal could have on private giving in this country.
*** VAT is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale.
