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09.27.2023 | Linda J. Rosenthal, JD
The Tax Cuts and Jobs Act of 2017 (TCJA) enacted last December was unlike other major overhauls of the federal tax code. Gone were the traditional months-long hearings, large number of amendments, and old-fashioned horse-trading. Instead, it was a mad dash for the finish line, with no bipartisan participation at all, and with relatively little thought and planning about what is good tax policy.
Unsurprisingly, what emerged was a hodge-podge mess of questionable, and poorly drafted, new tax provisions. A few of them directly relate to the nonprofit sector; others have an indirect – though still substantial – impact.
It’s customary following major legislation for Congress to write one or more technical correction bills to add in omissions, and to clear up vague and ambiguous provisions. Six months after the TCJA was signed into law, there is little movement on actual fixes for some glaring problems, although many proposals have popped up.
We’ve covered some of these ongoing discussions in recent months; this latest focuses on the charitable deduction. Some new statistics just released for the first quarter of 2018 seem to confirm what many in the nonprofit sector feared; charitable contributions are down. However, there is other data that seems to show little to no effect, specifically the Blackbaud Index seems to indicate that charitable contributions have actually increased.
While it is unclear how the new law will ultimately affect philanthropy, a key provision in the TCJA that many fear will likely have a profound effect on the entire sector is the significant change in the standard deduction for many taxpayers. Under the new law, the standard deduction is now available to a much larger number of taxpayers, up to $24,000 for couples and $12,000 for single filers. That means 21 million fewer taxpayers will itemize deductions, according to statistics from the Tax Policy Center.
Since the charitable deduction is available only to itemizers, some predict that this change in law will suppress giving by at least a few billion dollars, according to multiple analyses. Americans gave $281.9 billion in 2016, according to the annual “Giving USA” study; many are predicting that that figure is likely to drop significantly.
In addition, the TCJA changed the estate tax, significantly raising the minimum threshold before it comes into play. This difference may, according to some estimates, dramatically reduce the number of charitable bequests, perhaps up to some $7 billion a year.
In response to these dramatic changes in the tax law, a number of interesting possible responses and changes are currently being proposed at both the state and levels.
The nonprofit community should keep track of the various developments around the states to avert a patchwork of supposedly corrective laws that are well-intentioned but are not well-crafted fixes.