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Senate Passes Bill Tax Reform Bill Without Universal Charitable Deduction

U.S. public policy issues
December 6, 2017

Despite intense lobbying from the nonprofit sector, the universal charitable deduction was not included in the final Senate tax reform bill, which could lead to drops in charitable giving of $20 billion or more every year.

The Senate bill doubles the standard deduction to $24,000, a move that will reduce the number of Americans who itemize their taxes by 30 million (from 33 percent of all taxpayers to just five percent), according to the Congressional Joint Committee of Taxation. The Committee estimated that those Americans account for nearly $100 billion in itemized charitable gifts.

Research from Independent Sector and the Lilly Family School of Philanthropy shows that giving would drop under the Senate bill by $13 billion every year. Estimates from the Tax Policy Center show an even greater drop—up to $20 billion annually, and possibly more given the Senate bill also eliminates the estate tax.

“I’m very concerned that these estimates are just the tip of the iceberg when it comes to the drop in giving,” said Mike Geiger, president and CEO of AFP. “We’re going to see a loss of $100 billion in itemized gifts from donors who instead take the increased standard deduction, and no one really knows how much that’s going to affect giving. While tax policy doesn’t affect a person’s decision to give, we do know it affects how much he or she gives. So, we’re worried that some donors may not give as much because the incentive to itemize their giving is lost to the increased standard deduction.”

AFP and others in the charitable sector have been pushing for a universal charitable deduction to be included in the Senate bill. The universal charitable deduction would allow all taxpayers to take a charitable deduction, even if they took the standard deduction. Research shows that the universal charitable deduction would help offset the decrease in giving from the increased standard deduction.

“We’re grateful for the support of Senator James Lankford from Oklahoma who worked hard on behalf of the sector to include the universal charitable deduction into the Senate bill,” said Jason Lee, chief advocacy and strategy officer for AFP. “Rep. Mark Walker, from North Carolina, as well as Senators Debbie Stabenow, from Michigan, and Ron Wyden, from Oregon, all introduced bills or amendments with the universal charitable deduction, and I want to thank them for their leadership on this critical issue.”

AFP will continue to try to push the universal charitable deduction when the House of Representatives and Senate meet in a conference committee to iron out the differences between their two tax reform bills. Neither version included the universal charitable deduction, but both included a doubling of the standard deduction.

A follow-up “extenders” bill is another possibility to push passage of the universal charitable deduction. Such bills are common after large tax bills, and is a likely possibility given how quickly the current tax reform bills were moved through Congress.

“We are disappointed but we’re not going to stop lobbying on this issue on behalf of our members and charities across the U.S.,” said Geiger. “This is going to affect so many charities. We won’t feel the effect this year, but 2018 could see some massive changes in giving, and we’re going to work to prepare our members and fight to see the universal charitable deduction ultimately get enacted.”

Johnson Amendment

Another issue that will have to be resolved in conference committee is the Johnson Amendment, which prohibits charities from directly or indirectly attempting to influence an election or defeat of any candidate for public office.

The House version of the tax reform bill includes the repeal of the Johnson Amendment, but the Senate version does not.

“This is one of the most important but overlooked issues in the bills,” said Geiger. “Repealing the Johnson Amendment could dramatically remake the charitable sector as all charities, not just churches, could be used as pass-throughs for political dollars while donors get a charitable deduction. It’s not hard to envision a scenario where ‘charities’ are created to support political candidates and avoid the $5,000 giving limit that is attached to political action committees. Repeal of the amendment could have ramifications for both the political and charitable sectors that we don’t even see right now.”

AFP opposed repeal of the Johnson Amendment in a position paper published earlier this year. In part, it read:

But if a donor knows the charity is supporting political candidates that he or she opposes, why would they give? And what happens to the tax deductibility of their gift if part is used to be support a political candidate? And since charities are not required to disclose donors, while political parties and candidates are, will charities now become the refuge of political donors who want to remain anonymous? These are significant issues that directly affect not just the nature and operations of a charitable organization and all of philanthropy, but our ideas and principles about politics and elections as well.

AFP will continue to monitor work on tax reform and alert members if action is necessary.