What Will Congress Do? TCJA Provisions, Carryovers from Last Congress, New Proposals
But it is important to recognize that the current Congress may, at the end of the day, have a greater and more long-lasting effect on nonprofits. While there is still much that is not known about the likely direction Congress will take with respect to tax and other legislation that could impact nonprofits, what is known suggests three categories of proposals that could become law.
First, there are provisions of the legislation known as the Tax Cuts and Jobs Act, whether they are set to expire at the end of this year or permanent but potentially subject to modification. Perhaps the most impactful expiring provisions are the reduced marginal rates and sharply increased standard deduction, both applicable to individuals, which in combination have shrunk the proportion of U.S. households that itemize their deductions, and so that may take the charitable contribution deduction, to 7.5 percent. Research indicates these changes caused charitable giving to drop by about $20 billion in 2018, the first year they applied. But some members of Congress have also suggested modifying other provisions that are not set to expire, including increasing the college and university endowment excise tax (section 4968) enacted as part of the TCJA from 1.4% to as high as 21% (the current corporate income tax rate). Interestingly, no member of Congress appears to be interested in modifying the section 4960 excise tax on “excess” tax-exempt organization executive compensation, even to fix the drafting error that allows public universities to avoid this tax.
Second, there are several proposals directly relating to tax-exempt nonprofits from the the last Congress that members introduced and so for which draft legislative language is readily available. These include not only H.R. 9495, which targeted support of designated terrorist organizations or terrorism, but also other bills targeting foreign activities and activities (e.g., H.R. 8290, H.R. 8293, H.R. 8314). Of course there were also legislative proposals that would not restrict but would instead reduce restrictions or otherwise benefit nonprofits, including by providing a non-itemized deduction for charitable contributions (H.R. 3435, S. 566) and, from previous Congresses, modifying the political campaign intervention prohibition (e.g., H.R. 837 from the 117th Congress).
Third and finally, there are also several new proposals that have already surfaced in the current Congress that would directly impact tax-exempt nonprofits (as well as many proposals that would indirectly impact them, such as eliminating the estate tax). These proposals include the following items from the laundry list of revenue, tax cut, and other proposals circulated by House Budget Committee Chairman (and member of the Subcommittee on Tax Policy for the Ways & Means Committee) Jodey Arrington:
- Eliminate tax exemption for nonprofit hospitals.
- Eliminate eligibility for the charitable contribution deduction for health organizations.
- Increase the section 4968 endowment tax rate to 14 percent and changing the definition of student to favor American students.
- Eliminate tax exemption for credit unions.
They also include perhaps most prominently legislation (see Senator Hagerty press release with text of bill (to be numbered S. 497)) that would strip tax-exempt status under section 501(c)(3) from nonprofits that aid immigrants who in the United State illegally under certain circumstances (and subject to some exceptions).
Lloyd Mayer