Washington Snapshot - August 22, 2013
Up on Capitol Hill
Tax Reform
It's August, but a few interesting developments emerge
Talk continues about tax reform and its fate. This week the discussion is structured around two issues.
First, House Ways and Means Chairman Dave Camp (R-MI-4) announced that he will not be running for the U.S. Senate in 2014. As we reported in the August 8th edition of Snapshot, talk was swirling that Camp might make a run to switch houses, raising concerns that the demands of a Senate bid might make his campaign for tax reform even more difficult. With a Senate run off the table, we have some assurance that Chairman Camp will focus his attention on his top priority of tax reform.
Second, we’re again reminded of the challenges ahead for tax reform in this week’s National Journal. The article highlights that the fundamental issue of revenue-raising vs. revenue neutral remains unresolved. Add to that, House and Senate leaders have not voiced strong support for the effort. We believe we’ll get a much clearer picture of the path ahead when Members of Congress return from recess and may have an actual draft bill to which they can react and respond.
Tax Wonks will have big impact on tax reform
No one understands the complexity of the tax code better than a small, bi-partisan and bicameral office in the Capitol. The Joint Committee on Taxation (JCT) is the engine that will drive “scoring” tax code revisions (that is, determining how proposed tax changes would either cost or raise money). This team of tax experts is gearing up for what is sure to be a fall full of late nights and lots of coffee. As The Hill reports, JCT is critical to this process because its estimates will provide Congress with the numbers it needs, then determine where rates could be set and which tax provisions – including items like the charitable deduction – will need to be adjusted or eliminated.
Congress might not be moving too quickly on tax reform, but states are
Last week we covered North Carolina’s tax reform efforts which made significant changes to the code but did not alter the state charitable deduction provision. The subject of North Carolina’s new tax law was picked up by The Washington Post this week. The Post notes that states are moving tax reform bills forward, while the Congressional leaders are moving quite a bit slower here in Washington. And, we remind readers that they can learn more about state-specific tax reform issues on the National Council of Nonprofits website.
The Max and Dave Road Show
The Road Show hit the Silicon Valley this week with stops at Square and Intel. These visits focused on how changes to the tax code can spark innovation. Chairmen Max Baucus (D-MT) and Dave Camp (R-MI-4) authored an op-ed in conjunction with their visit which outlines what they see as three main principles to “grow and expand the economy.” “First is a boost and fairness for America’s families… the second principle is to level for U.S. employers… third is a tax code that is fair and simpler for small businesses.” As with all previous stops, these were private meetings. We will continue to update you on future stops as we learn about them.
During this junket Chairman Camp said that he is working on his tax reform bill, but is “not done yet.” He said “hopefully, sometime this fall we’ll be ready to move forward.” Meanwhile, Chairman Baucus has not even begun writing his bill. Even though he has not started writing a bill, Baucus has stated that his bill will go to markup this fall (Tax Notes, 08/21/2013).
The Chairmen also recorded a video interview with Fox Business about tax reform while visiting Square. The Chairmen talk about a number of aspects of tax reform including deductions (but not the charitable deduction specifically).
Charitable Deduction
Bruce Bartlett, a policy analyst who served both the Reagan and H.W. Bush administrations, wrote about the charitable deduction in his New York Times blog this week. Bartlett explains the history of the deduction dating back to 1917 and the First World War, and provides some detail on giving. The piece is an interesting read, although focuses entirely on the donors. Those of you who follow our messaging, which closely reflects the Charitable Giving Coalition, know that we emphasize that the benefit of the charitable deduction is the value of the contributions and the causes they support, particularly during a fragile economic recovery and when nonprofits are struggling to meet increased demand with fewer resources.
Columnist Steve Duin of Oregon Live writes a passionate article titled “Keep your hand off the charitable write off.” In it, he quotes Senator Ron Wyden (D-OR), who has signaled his support for the incentive: “I think the charitable write-off is going to be on the table for cutting back… [curbing the deduction would] harm the safety net and our ability to address the needs of people who don’t have power of political clout.”
Out Across the Country
Great Op-Eds that caught our attention
Juanita James, President of the Fairfield County Community Foundation, writes in The Hour Online, about the impact of the philanthropy in Fairfield County, and how important defending the charitable deduction is, not to the donors, but to people who benefit from those dollars. In conclusion she says “At a time when the need for crucial services is on the rise, we should be working to find ways to encourage more giving, not less.”
David Biemesderfer, president and CEO of Florida Philanthropic Network, and Sandi Scannelli, president and CEO of the Community Foundation for Brevard, make the case in Florida Today that “tampering with tax provisions would hurt local communities.”
Thanks to everyone who has written op-eds! If you are interested in writing an op-ed in your local paper, please contact Brian Horn.
In the Federal Agencies
The Internal Revenue Service this week granted 501(c)(3) status to two news organizations: New Marlborough 5 Village News Inc., Southfield, Mass. and San Francisco Community Publications Inc., San Francisco. The Council is very interested in the issue of nonprofit media and the important role these organizations can play to fill the void in communities across the country where for-profit news organizations no longer cover important local issues. In partnership with The John S. and James L. Knight Foundation, the Council managed the Nonprofit Media Working Group to create a report that addressed the challenges that nonprofit media organizations were facing when they applied for 501(c)(3) status with the IRS. We are pleased to see that these applications were approved by the Service and will continue to closely monitor the issue. For more information on this work visit our website.
On August 16, 2013, upon consideration of a request from a private foundation, the IRS decided that the investment activities conducted by the LLC would not generate unrelated business taxable income for the foundation with respect to the foundation’s Class A membership interest or to the proposed donation of the Class B interest; the foundation would not be liable for an excess business holding excise tax; and acceptance of the proposed gift of a Class B membership interest would not constitute a jeopardizing investment. The full text of the IRS ruling can be found at http://www.irs.gov/pub/irs-wd/1333020.pdf.
Other Interesting Issues That Caught Our Eye
Creating Divisions and Divides Among Charitable Causes
We often alert our members that the issue of hierarchy of charitable purpose is something we hear from the Hill and elsewhere. What does this mean? Basically, supporters of this concept would establish tiers, priorities or rankings of charitable causes, and might support a structure whereby some receive greater (or lesser) tax benefits than others. While the issue might have some immediate appeal to those who hear it, we’d strongly warn that it’s a dangerous path.
We’ve picked up on two variations of this debate in recent commentaries. First, Peter Singer addresses the issue in The New York Times, juxtaposing giving to an art museum and giving to an organization working to reduce an eye disease. Singer’s central question asks “given this choice, where would $100,000 do the most good? Which expenditure is likely to lead to the bigger improvement in the lives of those affected by it?” In response, Howard Husock takes to his Forbes blog to call attention to the danger of going down the seductive path of creating favorable charitable causes. Husock concludes saying “the logic of Singer’s ‘Good Charity, Bad Charity,” drives directly, however, toward the picking of winners and losers, about which policy should be cautious—if not indifferent.” purposes.
Mr. Singer specifically called out Rockefeller Philanthropy Advisors in his piece. Its president and CEO, Melissa A. Berman, wrote a letter to the editor in response, aptly stating “while we should support charities that are effective in achieving their goals, we cannot create a hierarchy of goodness.”
In the Wall Street Journal this week James Piereson and Naomi Schaefer Riley take a different approach to the hierarchy issue. Citing the situation in Princeton, N.J, where townspeople are suing the Ivy League university arguing that it should no longer be entitled to its tax-exempt status because the school makes money, they opine that many universities across America should pay taxes. This argument is not new; it has been raised for decades, and in some cases large universities have mollified the debate by paying PILOTS (payments in lieu of taxes) to municipalities. What we find interesting in this pieces is it brings us back to one of the inherent conundrums in the larger hierarchy question – that is, the difficult task of parsing what activities would or would not “fit” within a nonprofit educational institution. The piece closes with, “The fact that universities behave more like businesses may or may not be laudable. . . . [But] this trend isn't going away, and residents and local business owners in university towns may no longer be willing to buy the line colleges are selling.”
Dan Pallotta continues to capture attention
Over two million people have viewed the provocative TED Talk, “The way we think about charity is dead wrong.” Activist and nonprofit founder Dan Pallotta highlights five main ways in which nonprofits are “discriminated” against: employee compensation, marketing and advertising, taking risk to generate new revenue, time to scale a project, and profits to attract capital. Pallotta breaks down why we think a certain way about nonprofits, which ties back to colonial America and Calvinists (much more interesting than it sounds). As Suzanne Perry explains in The Chronicle of Philanthropy, Pallotta’s talk has sparked conversation in the sector, about this and other topics.
The Council in the News
Council President and CEO Vikki Spruill responded to a piece in U.S. News and World Report about Donor Advised Funds (DAFs). Vikki expresses the Council’s view “the philanthropic spirit is alive and thriving,” and DAFs are one way that donors can make a true impact in their communities. She highlights the important work of community foundations who help a donor realize the true potential of their donations, and show them how to make a positive impact.
Keep in touch
Let us know how we are doing, or about any issue that you’d like to see highlighted in a future Snapshot, by touching base with any member of our government relations team.
