Federal Tax Policy Outlook with the New Congress

Thursday, February 14, 2019

The 116th Congress is officially underway and MCF is getting ready to participate in Foundations on the Hill in March 2019 to meet with Minnesota's Congressional Delegation. The 2017 Tax Cuts and Jobs Act and its impact on the charitable sector will be a key focus for the visit.

So, what can we expect in this new Congress in terms of federal tax policy? The House is now controlled by Democrats, meaning that the House Ways and Means Committee has a new chair -- Chairmen Richard Neal from Massachusetts. Our national philanthropy colleagues expect that Chairmen Neal will most likely hold a hearing in 2019 on the impact of tax reform on charitable giving. We will keep you all informed when/if this gets scheduled. Minnesota doesn't have any members of our delegation on the Houes Ways & Means Committee, but it will still be an important hearing to monitor to get a sense of the level of interest in a potential 'fix' for some of the consequences of tax reform for charitable giving.

On the Senate side, the Senate Finance Committee, led by Chairman Grassley from Iowa, has jurisdiction over the charitable sector. We are being told to expect that Chairman Grassley will have a focus on oversight of the sector, with a particular oversight interest in donor advised funds [DAFs]. MCF's tax policy subcommittee is proactively having conversations around DAFs and what changes or regulations may be needed, given how much in the limelight they have been in recent months. This is an area where it will be important for the charitable sector to be part of the discussion to help ensure any new changes or regulations make sense and work well for the field. Chairmen Grassley is also interested in a package of tax extenders, which may be a 2019 vehicle for some other tax policy changes [e.g. UBIT fix].

In terms of actual tax proposals, there's some bipartisan support for repealing the unrelated business income tax [UBIT] provisions that were part of the 2017 tax reform. These provisions relate to a new tax on nonprofit transportation and parking benefits as well as a new way of calculating unrelated business income tax [silo-ing business areas rather than looking at net profit or loss across all business areas]. New research from The Independent Sector provides great talking points and data on the burden these provisions are placing on nonprofits, diverting money and attention from their missions. A conversation about repealing these UBIT provisions is likely in this Congress, especially if philanthropy and nonprofits keep up their advocacy efforts. 

Looking a little bit longer term, there is energy buidling around a universal charitable deduction, open to itemizers and non-itemizers. This would mitigate the impact of tax reform on charitable giving and provide all Americans with a tax incentive to give. Several different ideas are floating out there, including an above the line deduction without a cap, an above the line deduction capped at 1/3 of the standard deduction, and even possibly a charitable tax credit. MCF strongly supports a universal charitable deduction as a way to provide a giving incentive to all.

The CHARITY Act, which included a number of provisions of interest to the independent sector, including the private foundation excise tax simplification, is being reworked given tax reform and the timeline for introduction is unknown at this time. In the past, MCF had worked closely with Rep. Erik Paulson on a private foundation excise tax simplication bill, and we plan to bring this issue up with Minnesota's delegation when we're in DC in March.

We'll be sure to report back on what we learn about federal tax policy at Foundations on the Hill.


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