The current tax bill under review in Congress harms nonprofits in two ways.
What we think:
Congress should include a deduction for charitable giving in addition to the new standard deduction levels — and it should keep the Johnson Amendment in place.
While the tax bill undergoing review in Congress provides businesses — particularly small businesses — with a much-needed tax cut, it harms one important segment of the Colorado Springs economy: nonprofits.
Under both the House and Senate bills, the standard deduction is doubled, meaning fewer people will itemize taxes. While that sounds good in terms of less onerous tax forms, it would throttle funding streams for nonprofits. If fewer people need to itemize their taxes, they won’t take advantage of the tax deduction available for philanthropic giving. The Tax Policy Center estimates donations to nonprofits could drop by as much as $20 billion.
The drop in donations would come at the same time Congress is discussing a decrease in government spending for programs, which means nonprofits that help the poor and elderly would need to generate more income than ever before.
Imagine Southern Colorado without Care and Share helping feed needy residents, without The Independence Center providing job training and assistance to the disabled, without CASA of the Pikes Peak Region providing a voice for neglected and abused children. Think about downtown without the Springs Rescue Mission providing shelter for the homeless population.
There’s a reasonable solution: Allow tax deductions for donations to nonprofits in addition to the standard deduction. That retains steady funding for nonprofits — and encourages more donations as people and businesses can lower their tax obligations even further than under the current bills.
To add insult to injury, nonprofits face loss of credibility if the Johnson Amendment is repealed during the joint House and Senate reconciliation process. The amendment, named after President Lyndon B. Johnson, prohibits nonprofits — including churches — from engaging in politics, which allows them to keep their nonprofit status and avoid paying taxes. Repealing the Johnson Amendment opens up new avenues for dark money that can masquerade as churches or charities, without reporting guidelines or other checks on the amount of money donated and spent.
Imagine a political action committee turned into a nonprofit. It could call itself a church or file for nonprofit status. Under current IRS laws, the PAC could now operate with no tax requirements and fewer reporting requirements.
There would be no way to track all the money donated to these new “nonprofits.” The bill doesn’t include campaign disclosure rules or other requirements. It would simply create a new stream of dark money funded by shadow interests to influence elections. And it could undermine the good work nonprofit organizations are currently doing by harming the reputation of all nonprofits. Repealing the Johnson Amendment benefits no one except the politicians. It harms nonprofits; it also harms the democratic process.
There’s hope. Only the House bill includes the repeal; the Senate bill does not. The reconciliation process could find solutions for nonprofits to retain funding and could keep the Johnson Amendment intact. If it does not, then the 2018 election could sow even more discord and division than we saw in 2016.