Federal Tax Overhaul Signed into Law
Updated February 22, 2018
On Friday, December 22, President Trump signed into law sweeping tax legislation that will have significant, long-term ramifications for New Jersey, for charities, and the people and communities who need them. Many provisions take effect on January 1, 2018, though taxpayers won’t see the full impact of many provisions until they file their 2018 tax returns in 2019.
Despite an important — but possibly fleeting — victory in removing House language that would have gutted the Johnson Amendment (the law preserving 501(c)(3) nonpartisanship), the final bill will precipitate steep drops in charitable giving, harm large proportions of New Jerseyans across income levels, impose immense fiscal pressures on state and local governments, and decimate charities when demand for services is already outpacing needed resources to fill community needs.
The National Council of Nonprofits has prepared a compliance checklist to help charities adjust to the new laaw.
Also see the Center’s recent blog post about the tax act.
Major provisions of the new law
Charitable Giving Incentives Reduced
Although technically the charitable giving deduction itself remains unchanged, the tax reform bill will have a significant negative impact on charitable giving. The deduction is only available for households that itemize on their tax returns. People who take the standard deduction cannot deduct their charitable gifts, and because the standard deduction would double under each bill, it would make the charitable deduction unavailable to approximately 95% of taxpayers. Studies from the Lilly School of Philanthropy and others suggest that this change could cost charities $13 billion or more each year in lost giving. Provisions sought by a broad coalition of non-profit advocates to extend a charitable giving incentive to non-itemizers were not included in the bill.
Comment: Charities are already straining under the weight of skyrocketing demand for services and funding that has not kept pace. The reductions in giving that will result from this bill will be devastating to the charities and the people, communities and causes that depend on them for critical programs and services.
Estate Tax Threshold Doubled
Effective January 1, 2018, the estate tax threshold will nearly double, from its current level of $11 million per couple ($5.5 million per individual) to $22 million ($11 million per individual). This provision is projected to reduce federal revenues by nearly $100 billion over 10 years and lower charitable giving nationally by $4 billion per year.
Comment: It should be remembered that even under current law, only the wealthiest 0.2% 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 on numerous levels. There is also deep concern that estate tax repeal, and the accompanying charitable giving incentive, will adversely affect bequests made to charities.
State and Local Tax (SALT) Deductions Reduced
In a provision that is especially harmful to New Jersey, each bill would end the deductibility of state and local income taxes and would cap property tax deductions at $10,000.
Comment – As New Jersey Policy Perspective reports, this change would hurt thousands of New Jersey families across a wide range of income levels. The Center on Budget and Policy Priorities has identified a number of ways in which state and local governments nationwide, and disproportionately in states like New Jersey, would be negatively affected.
Affordable Care Act Individual Mandate
Repeals the individual mandate by reducing the penalties to $0, effective January 1, 2019.
Comment – The individual mandate repeal raises approx. $318 billion which is used to offset some of the cost of various tax cuts in the bill. The nonpartisan Congressional Budget Office (CBO) estimates that repealing the individual mandate will result in 13 million fewer people having insurance coverage by 2027 and that average premiums will be 10% higher in most years than they would be under current law.
Fiscal and Budgetary Impact
The tax bill is projected to add at least $1.5 trillion to the federal deficit over 10 years. Meanwhile, the president and congressional leaders have already proposed draconian funding cuts to many vital programs and services that people in communities depend on.
Comment – The funding cuts that will be needed to pay for this legislation will add extra stressors to already cash-strapped state and local governments as well as decimating critical programs and services. This will create added burdens on non-profits, causing the need for their programs to further skyrocket when demand has already been outpacing funding and resources for years. Non-profits can’t possibly fill the gaps created by these kinds of cuts, and people in our communities will be hurt needlessly.
An important — but possibly fleeting – victory for non-profit nonpartisanship In an important victory, the final bill does not include language to significantly weaken the Johnson Amendment, the tax-law protection from partisan politics that has for decades enabled charitable non-profits, houses of worship, and foundations to remain focused on their missions and problem-solving in their communities. The House bill would have allowed 501(c)(3) organizations to endorse candidates and engage in partisan political speech as long as such speech is “in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose,” and it incurs no more than “de minimis” expenses in doing so. Attempts to add it to the final bill ultimately failed due to a parliamentary ruling, but this matter could resurface in January when the appropriations process resumes in Congress.
Comment: The Center continues to vigorously oppose efforts to weaken the existing laws which have for 60+ years allowed charities and houses of worship to work in communities free from partisan pressures, divisions and interference. Over 5,500 organizations nationwide, along with thousands of religious leaders, faith organizations, charity regulators and the vast majority of the general public, strongly oppose weakening the Johnson Amendment. We thank everyone who raised their voices to the ability of protect charities, houses of worship and foundations to pursue their missions free from partisan pressures and interference. It should be stressed that President Trump and majority leaders in Congress remain very eager to gut the Johnson Amendment, so continued vigilance and advocacy will be absolutely crucial.
Other Exempt Organization Changes – The tax bill would make a variety of important changes affecting various segments of the exempt organization community, many of which would result in higher taxes owed by organizations. See the final bill summary for more details and comparison of these provisions.
Despite some claims to the contrary, the tax reform legislation is far from simple, and fully unpacking its provisions will take time. Without question, however, it will have severe consequences for New Jerseyans, for non-profits and for people who rely on non-profits (in other words, everyone). Charities must be prepared to take steps to adapt to the new landscape and work to strengthen relationshps with donors, policy makers and all stakeholders.
What’s also clear is that the challenges are far from over. The White House and Congressional leaders have indicated heir desire to drastically cut key safety net and other critical programs in the upcoming appropriations and budget processes – and in the $1.5 trillion price tag attached to the tax bill, will claim to have found the fiscal justification to do so. Attempts to undermine the nonpartisan protections for non-profits will also continue. Non-profits must remain on high alert and be ready to act, on these issues and on countless others within their own areas of mission focus.
The Center for Non-Profits will be working with our allies in the National Council of Nonprofits network and here in New Jersey to arrange webinars, briefings and provide other materials and information to help organizations strategize in the face of these current and emerging challenges. Watch our website, your email, and social media (Twitter, Facebook, LinkedIn or Instagram) for updates.
- National Council of Nonprofits 2018 Tax Law Checklist
- Center for Non-Profits summary chart of the tax law
- Our blog:
The New Federal Tax Law and New Jersey Non-Profits
- Our Op-Ed in NJSpotlight:
For NJ Charities, Tax-Reform Bills Offer Little to Be Thankful For (11/21/2017; commentary regarding an earlier version of the tax bill)
- The National Council of Nonprofits’ summary of the final law: www.councilofnonprofits.org/sites/default/files/documents/tax-bill-summary-chart.pdf.
- Older side-by-side comparison of the previous House and Senate tax bills (12/16/2017)
- Our Johnson Amendment op-ed in The Record
- Joint NJ Spotlight op-ed: “A Message to Congress: Keep Charities and Foundations Nonpartisan,” by Linda Czipo and Council of New Jersey Grantmakers President Nina Stack (4/19/2017)