Advocates for the nonprofit sector largely cheered the version of the tax bill released by the Senate Finance Committee this week, including changes that would help address the long-term decline in the number of everyday donors and eliminate new taxes on private foundations.
The Senate Finance Committee text greatly increases the meager charitable deduction for non-itemizers in the House bill, approved last month. The Senate Finance Committee version would allow all taxpayers to deduct a portion of their charitable giving — up to $1,000 for individuals and $2,000 for married couples. That’s more than three times the limit for non-itemizers that the House had proposed — just $300 for individuals and $600 for couples.
The expansion of the standard deduction in the 2017 tax bill led to a sharp drop in the number of people who itemize their taxes. Only about 10 percent of Americans now itemize, which means the remaining 90 percent receive no tax benefit from their giving. That change has contributed to a long-term slide in giving by small donors: Fewer than half of Americans now give to charity.
“Continuing to strengthen the charitable deduction in the Senate bill sends a clear message that encouraging private philanthropy is a national priority,” Brian Flahaven, chairman of the Charitable Giving Coalition and vice president for strategic partnerships at the Council for Advancement and Support of Education, said in a statement.
The Senate version would help pay for the increased deduction for everyday donors by putting a new floor on the charitable deduction that more affluent donors receive. The bill proposes that donors who itemize their taxes receive no tax benefit until their gifts exceed 0.5 percent of adjusted gross income.
The Senate version of the bill would also eliminate the proposed increases in excise taxes on net investment income at private foundations. The House version had proposed escalating taxes on private foundations that would have cost the largest foundations tens or hundreds of millions a year in additional taxes.
College endowments also caught a break in the Senate proposal — although they didn’t fare as well as private foundations. The Senate version would keep the House proposal for an excise tax on net investment income at 1.4 percent for endowments worth $500,000 to $750,000 per student. But it would lower rates to 4 percent for endowments worth more than $750,000 up to $2 million per student, and to 8 percent for endowments above $2 million per student. The House version of the bill proposed higher tax rates — including a 21 percent rate, the same that for-profit corporations pay, for a handful of the largest endowments.
Senate leaders also eliminated a proposed tax on transportation benefits provided to employees by nonprofits. The House bill would have subjected any qualified transportation fringe benefit, such as transit benefits or parking benefits, to unrelated business income tax rules.
Organizations such as the National Council of Nonprofits, the Council on Foundations, and the United Philanthropy Forum thanked their members for voicing opposition to lawmakers about the provisions that would have hurt nonprofits and philanthropy.
But they noted that harmful provisions still exist in the bill, including the new 1 percent floor on corporate charitable deductions and cuts to Medicaid in the Senate version that go further than what the House proposed.
“This is not the end of the work,” said Matthew Evans, the United Philanthropy Forum’s vice president of advocacy and external relations, in a statement.
Senate leaders are hoping to pass the full tax bill by next weekend. It would then return to the House for a vote.
