We don’t often think about how federal tax law might affect local parks and recreation. As more and more park districts and parks and recreation agencies turn to the nonprofit sector to bridge budget gaps, the new tax policy reform legislation making its way through the U.S. Congress raises questions and concerns. Here’s why. This is the 100th anniversary of the charitable deduction. The charitable deduction, which provides a tax deduction for contributions to qualified charitable nonprofit organizations, has been in place since it was created by the U.S. Congress in the Revenue Act of 1917. It is available to taxpayers who itemize when filing their federal tax returns, which includes 1/3 of all Americans. There have been no significant changes to our complex tax law since the Tax Reform Act of 1986, but there are two bills – one in the U.S. House and one in the U.S. Senate – that propose major changes to the U.S. tax code.
The U.S. House has already passed its version of the tax reform bill, and this week the U.S. Senate is debating its own version of the legislation. Together, the bill is referred to as the Tax Cuts and Jobs Act (H.R. 1). The goal of Republican leadership is to reconcile the House and Senate bills, and pass comprehensive tax policy reform by the end of the year. While reducing the tax burden of individuals and corporations is laudable, the proposed provisions in the legislation come with consequences. There are many facets to these tax reform proposals, which affect corporations, higher education, healthcare, home mortgages, state and local taxes…and charitable giving.
How might charitable giving be impacted in the proposed tax reform law, and how might it impact nonprofit charitable organizations including 501(c)(3) nonprofit park foundations…and by extension the parks and recreation agencies and special park districts they support? One of the proposals the House has advanced is to double the standard deduction to as much as $24,400 for a married couple, which could reduce the amount of deductible charitable contributions nationally from the current $241 billion down to $146 billion. The practical effect of raising the standard deduction would be to reduce the number of taxpayers who can itemize qualified deductions on their federal tax returns. Tax filers do this when the sum of all their deductions is greater than the standard deduction determined by the Internal Revenue Service.
The Independent Sector, the Council on Foundations, and the National Council of Nonprofits have come together to oppose H.R. 1, and are advocating for the inclusion of a universal deduction for charitable donations to extend charitable giving incentives to all taxpayers.
The question is whether a significant increase in the standard deduction would discourage people from donating to qualified nonprofit public charities such as park foundations and friends groups. America is an altruistic nation, and charitable giving has risen by 4% in each of the past two years. While we know that altruism is a motivating factor for giving to public charitable organizations, we know that many itemize donations on their federal tax returns. Should the tax policy reform legislation incentivize charitable giving, and what mechanism should be used to accomplish it? Public charities have been instrumental in supporting healthcare, social services and other worthy causes such as the park foundations that help their local parks and recreation agencies improve the quality of life in their communities.
The charitable tax deduction has been in place for 100 years. Will donors continue to give, and at the same levels, if they are unable to itemize on their tax returns? As the Tax Cut and Jobs Act (H.R. 1) moves through the legislative process, we must communicate to our congressional representatives the significant role that nonprofit organizations play in the fabric of our society, and the impact that the new tax reform bill may have on the nonprofit sector.