For New Jersey’s 30,000 charitable nonprofit organizations, the dueling House and Senate tax reform bills being fast-tracked through Congress are complex and differ in many key respects, but they have one important thing in common: both are harmful for New Jersey charities and all of us who rely on them for programs, services, protection, and well-being.
Unless dramatic changes are made, both bills would have a devastating impact on nonprofits and the communities they serve.
1) Charitable giving will plunge — By increasing the standard deduction, both bills would reduce the percentage of taxpayers who itemize from 30 percent to only 5 percent. Although technically the charitable giving deduction remains intact in each bill, far fewer households will be able to use it, resulting in an estimated $13 billion drop in charitable giving every year. Nonprofits have pressed for a provision to extend the charitable deduction to non-itemizers so that taxpayers at all income levels would benefit from their generosity, but so far neither bill includes it.
2) Nonprofit nonpartisanship threatened — In a seismic shift from current law, the House bill would allow 501(c)(3) charities, churches, and foundations to endorse candidates and engage in partisan political speech. It would effectively gut the existing law, known as the Johnson Amendment, which has for 60-plus years allowed these organizations to work in communities free from partisan pressures, divisions, and interference. Over 5,500 organizations nationwide, along with thousands of religious leaders, faith organizations, law enforcement, New Jersey non-profits and philanthropy, and the vast majority of the general public, oppose weakening the Johnson Amendment. The nonpartisan Joint Committee on Taxation (JCT) estimates that the House language would cost the federal government $2.1 billion over six years in lost revenue because donors would divert their nondeductible political donations to political churches and charities in order to claim charitable tax deductions.
3) Estate tax phase-out — Both bills would immediately double the estate tax threshold to $22 million per couple ($11 million per individual), and the House bill would phase out the estate tax completely in six years. The JCT estimates that the House measure would cost the Treasury $150 billion over 10 years. Keep in mind that under current law, only the wealthiest 0.2 percent of estates are subject to the estate tax. With federal budget proposals already threatening to decimate funding for vital programs and services, this cut is especially costly in numerous ways. Narrowing or repealing the estate tax will also reduce the incentive to make planned legacy gifts to charities and will adversely affect charitable bequests. By one estimate, charitable bequests could drop by $139 million over the next seven years in New Jersey alone and by $7.7 billion nationally.
4) State and local tax (SALT) deductions slashed — Especially harmful to New Jersey, the House bill would end the deductibility of state and local income taxes and would cap property-tax deductions at $10,000, while the Senate would eliminate all SALT deductions completely. The resulting pressure on state and local governments to enact tax and spending cuts would lead to likely elimination of key programs serving people in need and would add impossible expectations for charitable nonprofits and foundations to fill the gaps.
Remember that while this legislation would add at least $1.5 trillion to the federal deficit over 10 years, the president and congressional leaders have also proposed draconian funding cuts to many vital programs and services that people in communities depend on.
The House and Senate tax bills would inflict a direct multi-billion-dollar hit on charities when more and more people are turning to them for help. They threaten to harm many thousands of hardworking New Jerseyans, add impossible pressures on the charitable and philanthropic communities to meet ever-rising demand for services and fill deep funding gaps left by government, and will shred our community fabric by injecting politics and dark money into charitable work. We urge Congress to ensure that these devastating consequences are avoided.