In October Congress passed a budget resolution that laid out instructions for a tax bill. On November 2nd, the House took a major step forward in that process by releasing the Tax Cut and Jobs Bill, and the Senate followed suit with their version released on November 9th.
Both versions of this tax bill reflect the same harmful priorities seen in the budget. The budget which permits irresponsible tax cuts, has now lead to just that: irresponsible tax bills that will lead to deep cuts to essential programs that affect millions of Americans.
Instead of investing in a prosperous future, shared by all communities, this tax bill undermines the services that help communities thrive, including damaging the nonprofit sector.
MCN’s policy team hosting a briefing webinar on Nov 16th. Register here.
Both chambers hope to hold a floor vote soon, and Republican leadership would like to finish this by December 25th, but that is a tight time line, especially for a bill that is as large as this one and could slip into 2018.
What are the threats to nonprofits and communities?
Because of the scope of this bill, there will be many multifaceted debates. Here is a brief summary of some of the larger issues that will be debated in the coming weeks.
1. Threats to community investments
In order to pay for the trillions of dollars in tax cuts, there will need to be “savings” elsewhere. Given the priorities outlined in the budget, it is not hard to guess where that money will come from: cuts to essential services that help make healthcare affordable like Medicare and Medicaid, basic food assistance like SNAP, and a range of other services that invest in communities.
Aside from those risks, the GOP plan also includes changes to the tax code that put an end to supporting students through student loan deductions and other tax incentives.
2. Charitable giving via charitable deduction & estate tax
These bills call for doubling the standard deduction which will drastically reduce the number of people who itemize their deductions. That means that the tax incentive for charitable giving is drastically reduced, and research from Independent Sector and University of Indiana shows that will have a meaningful and damaging impact on charitable giving, reducing annual giving by over $13 billion.
This bill is also set to repeal the estate tax in 2024, which not only reduces the amount of revenue to federal government by billions of dollars, it targets yet another vital tax incentive that encourages charitable giving.
Repealing the estate tax has been a Republican priority for years, but this repeal will cost $239 billion in federal revenue in order to benefit the wealthiest 0.2% of heirs. This means that it will serve as an important talking point for opponents of the bill.
3. Increases to the deficit
According to the budget resolution, a tax bill can only increase the deficit by $1.5 trillion dollars in the 10 year budget window. On November 8th, the nonpartisan Congressional Budget Office estimates that the House bill will go over that limit, adding $1.7 trillion to the deficit.
The Senate version delays the start date of some corporate tax cuts, reducing the cost of the plan, in order to make it eligible for reconciliation, the process that Republicans planned to use to pass the bill through the Senate with only 51 votes, instead of the filibuster proof 60.
If the bill is unable to pass through reconciliation, the authors of the bill will either need to make changes so that the bill falls within their targeted deficit increase, or work to gain bipartisan support for their bill.
4. Other areas to watch
Changes to the corporate tax code were among the highest priorities for congressional Republicans and the White House. They will be subject to their own debates, and will take up a significant bandwidth going forward.
In addition to those, the proposed doubling of the standard deduction will also impact the mortgage interest deduction. Like the reduced incentives for taking the charitable deduction, doubling the standard deduction means fewer people will be taking the mortgage interest deduction. The popularity of that particular deduction means that many powerful housing lobbying groups will be calling attention to it, including both the National Home Builders Association and the National Association of Realtors.
The House version would also eliminate all tax-exempt private activity bonds, including qualified 501(c)(3) bonds, eliminating an important financing option for many nonprofits.
What are the next steps?
Before a bill can be signed into law by the president, it must be passed the House and the Senate with the exact same language. Now, both chambers will have to pass their own version through a floor vote, before the conference process begins, which will settle the differences between the House and Senate versions.
It is important to remember that whatever tweaks come out of these policy debates to the particulars will not change the underlying values we see in this bill. The result of these debates and mark ups will be unable to fix the fatal flaws in the fundamental architecture of this tax bill.
According to MCN’s Minnesota Budget Project:
When both the tax implications and the likely cuts to services are taken into account, this is a plan that would exacerbate income inequality and do little to meaningfully improve the living standards of most Americans.
What do advocates need to know?
Policy debates are not just about deciding the particular execution of proposals. They are an opportunity for advocates to let policy makers know what values they need to see reflected in those proposals.
Communities deserve a tax bill that invests in their future. Unfortunately, that is not what we see in this tax bill. The debates outlined above are not exhaustive, but are opportunities to work with law makers to realize a vision of strong, thriving communities. We urge advocates to let their representatives know what they hope to see a tax bill that reflects values of interconnectedness, partnership, and investment.
For further discussion of particular advocacy strategies and policy debates, register for our upcoming webinar on Nov 16th.