Breaking news:  Rep. Mark Walker (R-NC) has just introduced the Universal Charitable Giving Act of 2017 (H.R. 3988), which would allow people who do not itemize their tax returns to take a charitable deduction, with the amount capped at a third of the standard deduction.  The details of this bill are likely to change, so stay tuned.

The budget resolution that the House of Representatives approved last week sets up a procedure for fast-track consideration of tax legislation, enabling the Senate to pass a tax plan with just 51 votes, rather than 60 votes typically required for such controversial legislation.

Tax reform is a big deal and it’s complicated. We have a glimpse of what’s in store in the White House's Unified Framework for Fixing the Broken Tax Code, a broad outline of proposed changes for both individual and corporate taxes.

We don’t have all the details yet and we don’t understand some of what we have seen. But we do know that it will affect all of us in a variety of ways. Here are some things Californians and California nonprofits may want to pay attention to as the tax reform debate unfolds.

The proposed tax reform package might not reduce your personal income taxes, or at least not as much as you may have hoped. 

The current proposals mostly benefit the highest income households. For the rest of us, it might not make much of a difference, or we could actually end up paying more in taxes. The top 1% households (those making $730,000 or more) would receive half of all the plan’s tax cuts while middle-income households (those making between about $50,000 and $90,000) would get only about 8% of the total benefit.

“Increasing the standard deduction and losing the personal deduction is a trade-off that might work for single filers with no kids,” said Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center. "It doesn’t work at all for a singer filer with two kids. They’d be worse off.” (LA Times 9-28-17). More from Howard Gleckman at the Tax Policy Center here.

Tax reform could result in deep cuts to federal programs.

The proposed tax plan could reduce tax dollars collected by the federal government by as much as $5 trillion. It’s simple math: less in tax dollars collected means less money going to the federal government, which means the federal government has less to spend on federal programs people rely on: everything from highway repair, Medicaid, housing subsidies, public education, medical research, and other services.

And for nonprofit organizations, cuts in federal programs means cuts in contracts to nonprofits in human services, health, housing, the arts, and environment. With one in every six California jobs at a nonprofit, federal cuts mean layoffs at nonprofits, and fewer services to communities in need.

The budget resolution passed by the House last week contains deep cuts to vital human services programs, and would set up a process for tax cuts tilted to the wealthy at the expense of programs that serve low and moderate income people. CalNonprofits signed onto a letter to the California congressional delegation opposing this Budget Resolution.

In case you're wondering if California can somehow protect itself from federal spending cuts, remember that more than one-third of the California state budget comes from the federal government.

Tax reform could discourage charitable giving.

While the current tax reform framework keeps the charitable tax deduction, it also proposes to double the standard deduction. This would have the impact of moving taxpayers away from itemizing their deductions, and result in $13 billion less in donations each year. Many nonprofits depend on the revenue from individual contributions, and taking away an incentive for people to give will make the job of bringing in donations harder.

In short, the proposed tax package leaves much to be desired -- in terms of reducing federal spending as well as personal income tax cuts that are weighted towards the wealthiest rather than those who most need them. For right now, nonprofits should stay informed and connect with their locally-elected members of Congress. Let them know you are watching. To find the contact information for your Congress member, click here and input your nonprofit’s zip code in the upper right corner.

For more information:
What's at stake in the current Federal Budget Proposals: Fact Sheets by Congressional District (California Budget & Policy Center)
Trump Budget Gets Two-Thirds of Its Cuts From Programs for Low- and Moderate-Income People (Center for Budget and Policy Priorities)
Senate Republicans Take Big First Step Towards $1.5 Trillion Revenue-Losing Tax Cut (Center for Budget and Policy Priorities)
A Preliminary Analysis of the Unified Framework (Tax Policy Center)