Murky Timeline Aside, Tax Reform is Key Issue for Nonprofits

November 25, 2013       John Graham IV      

Prospects for legislation overhauling the federal tax code appear murkier by the day, with the top tax writers in Congress still unwilling to share any actual bill language and the timeline for legislation now slipping to next year at the earliest.

But despite the fact that tax reform remains a heavy lift for this politically divisive Congress, nonprofit organizations ignore the issue at their own peril.

Tax reform still seems most likely to originate in the U.S. House of Representatives, where House Ways and Means Committee Chairman Dave Camp (R-MI) has successfully kept the details of his bill close to the vest. Camp has said that he wants to slash the top corporate and individual tax rates from 35 percent and 39.6 percent, respectively, to 25 percent. That kind of rate reduction will require Congress to eliminate or drastically reduce some popular tax breaks, a proposition that could prove difficult for many lawmakers to back in an election year.

While Camp might still have work to do to shore up support among the rank-and-file, there’s a reasonable argument to be made for pursuing a tax code rewrite, even in an election year: it’s good for the economy. Camp believes strongly that his plan to lower rates will generate the kind of dynamic growth in employment and the economy in general that’s been elusive since the 2008 recession.

Though there was some speculation that House leaders had recently asked Camp to slow down on tax reform — in part so as not to distract from the budget conference that has until Dec. 13 to reach a deal — Camp has recently come out determined to introduce a tax plan in December or January. “Just because the calendar hits 12/31 doesn’t change the need for comprehensive tax reform that grows our economy and creates jobs,” Camp told reporters on Nov. 18.

On the other side of the Capitol, Senate Finance Committee Chairman Max Baucus (D-MT) is also pushing hard for tax reform that includes lower corporate rates, but his plan won’t likely be revenue-neutral if he expects support from Senate Democrats. The partisan approach that both tax-writing committees have taken to date in the bill-drafting process only increases the skepticism about whether an overhaul bill could advance next year.

The stakes are too high for too many sectors — nonprofits included — to stay on the sidelines.

Even with most of the bill-writing taking place behind closed doors, we know lawmakers have considered or are still considering provisions to reduce or eliminate the deduction for charitable giving. We also know that Congress is interested in the relative prioritization of tax exemption, meaning for example, “Is a soup kitchen more deserving of tax-exempt status than a trade association?”

Lawmakers have also expressed interest in the growing complexity of nonprofit organizations’ revenue-generating activities, namely commercial activities.

The level of secrecy in this bill-writing process only amplifies the anxiety many are feeling when it comes to this potential overhaul. Regardless of how likely it is for a bill to advance in an election year, nonprofit organizations will almost certainly have an interest to protect whenever an overhaul package comes to light.

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