council conversations august 16, 2012 government relations

Council ConversationsAugust 16, 2012

Government Relations

Leadership Webinar Series

©2012, Partnership for Philanthropic Planning

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Jon Ackerman

Law Officer of Jonathan Ackerman LLC

Past chair and current member, PPP Board of Directors

PPP’s Government Relations Advisors

The 112th Congress

A “Congress” runs for two years

To become law, legislation must be: Introduced in each chamber Referred to committee for study and action Passed in identical form by a majority vote Signed by the President

All within the two-year term of a Congress

© 2012 • Partnership for Philanthropic Planning

The 112th Congress

Senate – 100 seats

Democrats enjoy majority, but no control:51 to 47 (including 2 independentswho caucus with Democrats)

House of Representatives – 435 seats

Republicans have control: 242 to 190 (3 vacancies)


Ways & MeansCommitteeChair: Dave Camp

Legislative Committees

Senate FinanceCommittee Chair: Max Baucus


http://upload.wikimedia.org/wikipedia/commons/a/a6/Dave_Camp,_official_portrait,_111th_Congress.jpg

Outlook for the 112th Congress

The Republican majority in the House have indicated that they will pursue three main initiatives: • Repealing the new health care bill• Reducing the budget deficit• Making government smaller

House Ways and Means Chairman, Dave Camp (R-Mich.) stated last year that he sees a “unique opportunity” to overhaul the nation’s tax system in the next two years


Debt and Deficits National Commission on Fiscal Responsibility

and Reform• Recommends eliminating all “tax expenditures”,

including all itemized deductions• “Simplify key provisions to promote work,

homes, health, charity, and savings while increasing or maintaining progressivity”• Eliminate all tax expenditures for business –

lower rates


Public Policy Outlook

Tax reform – How extensive?• Most “Bush Tax Cuts” expire in 2013• Promise to reduce taxes; resistance to tax increases• Need to pay for healthcare reform, two wars,

deficit

Continuing concern over abuse of tax exempt status• SFC Chair Baucus shares Senator Grassley’s

concerns over perceived abuses


Transfer Taxes 2012 2013 Obama

BudgetSensible EstateTax Act

Estate Tax 5.12 million 1 million 3.5 million 1 million (indexed)Gift Tax 5.12 million 1 million 1 million 1 million (indexed)GST 5.12 million 1 million

(indexed)3.5 million 1 million (indexed)

Max. Tax Rate

35% 55%+ 45% 55%+

State Estate Tax

1 million 1 million 1 million 1 million

Max. Tax Rate

16% 16% 16% 16%


2012 2013 Social Security tax to 4.2% Bush tax rates

◦15% long term capital gain ◦no phaseout itemized deductions

AMT relief & “extenders” New health care act taxes

(3.8%/0.9%)

Income Taxes


New Health Care Tax in 2013 if incomeover $200,000 ($250,000 joint returns)• 3.8% investment income surtax• 0.9% earned income (wages, etc.)

The “Bush Tax Cuts” expire in 2012• Return to Clinton era tax rates in 2013‐

Income Taxes


Maximum Tax Rates

2012 2013

Investment income

35% 43.4% (39.6 +3.8)

Earned income (wages - 1.45% health)

36.4% 41.9%(41+.9)

Dividends 15% 43.4%(39.6+3.8)

LT Capital Gains 15% 23.8%(20+3.8)

Income Tax Rates--Differential

DOUBLE BENEFIT FROM GIFT OFAPPRECIATED L.T.C.G. PROPERTY

<< Avoid long-term capital gains cost

<< Charitable income tax deduction

Impact of Tax Rates on Charitable Giving


Donors in 2012

<< 15%* LTCG Tax Rate

<< 35% Marginal Tax Rate

* 25% - Depreciable real estate* 28% - Collectibles

50%


Donors in 2013

<< 23.8%* LTCG Tax Rate

<< 39.6% Marginal Tax Rate(3.8% surtax not avoided by charitable deduction)

* 28.8% Depreciable real estate* 31.8% Collectibles

64.4%



Craig Wruck

St. Cloud State University

Past chair, PPP Board of Directors


After-tax Cost of GiftAssume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain):

Cash Securities

Top tax rate 28% 35% 28% 35%

Contribution

Income taxes saved

Capital gains tax saved

After-tax cost of gift

Discount


Assume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain):

Cash Securities

Top tax rate 28% 35% 28% 35%

Contribution

Income taxes saved

Capital gains tax saved

After-tax cost of gift

Discount

After-tax Cost of Gift



Cash Securities

Top tax rate 28% 35% 28% 35%

Contribution 10,000

Income taxes saved 2,800

Capital gains tax saved 0

After-tax cost of gift $7,200

Discount 28%




Cash Securities

Top tax rate 28% 35% 28% 35%

Contribution 10,000 10,000

Income taxes saved 2,800 3,500

Capital gains tax saved 0 0

After-tax cost of gift $7,200 $6,500

Discount 28% 35%




Cash Securities

Top tax rate 28% 35% 28% 35%

Contribution 10,000 10,000 10,000

Income taxes saved 2,800 3,500 2,800

Capital gains tax saved 0 0 1,200

After-tax cost of gift $7,200 $6,500 $6,000

Discount 28% 35% 40%




Cash Securities

Top tax rate 28% 35% 28% 35%

Contribution 10,000 10,000 10,000 10,000

Income taxes saved 2,800 3,500 2,800 3,500

Capital gains tax saved 0 0 1,200 1,200

After-tax cost of gift $7,200 $6,500 $6,000 $5,300

Discount 28% 35% 40% 47%




Cash Securities

Top tax rate 28% 35% 28% 35%

Contribution 10,000 10,000 10,000 10,000

Income taxes saved 2,800 3,500 2,800 3,500

Capital gains tax saved 0 0 1,200 1,200

After-tax cost of gift $7,200 $6,500 $6,000 $5,300

Incentive or Subsidy? 28% 35% 40% 47%



Congressional Budget Office


A ‘tax subsidy’ that:

Costs the treasury $46 billion per year

Is not equitable

◦ Subsidizes wealthy taxpayers more than others

◦ Subsidizes charitable giving to some organizations (chosen by the wealthy) more than others

CBO: The charitable deduction is …


67%

9%

10%

3%3%1%

7%

AGI under $100,000

ReligiousCombined AppealSocial ServiceHealthEducationArtsOther

Where Americans give:


57%

11%

12%

6%

6%2%6%

AGI $100,000 to $200,000




23%

11%

6%

5%32%

15%

8%

AGI $200,000 to $1 million




17%

4%

4%

25%

25%

15%

10%

AGI Over $1 million




Retain deduction for itemizers only but establish floor (either $500/$1000 or 2%)

Allow all taxpayers to claim deduction (with or without a floor)

Replace deduction with a credit (at either 25% or 15%) with or without a floor

All options would reduce charitable giving … but the reduction in giving would be less than the reduction in subsidy

CBO Proposals


Impact of Various Options to Change the Charitable Deduction

Replace w/ 15.25%

Refundable Credit

22% Cap on Deduction

Current Law w/ 1% AGI Floor

Above the Line Deduction w/ 1.7%

AGI FloorIncome

Lowest quintile 13.6% 0.0% 0.4% 1.1%

Second quintile 11.3% 0.0% -0.1% 3.9%

Middle Quintile 7.3% -0.1% -0.3% 3.4%

Fourth Quintile 1.8% -0.6% -0.7% 2.1%

Top Quintile -9.6% -5.7% -1.3% -1.6%

Revenue Change ($ billions)

$10.1 $9.9 $10.5 $10.7

Giving Change ($ billions)

-$8.4 -$7.4 -$1.9 $0.0

Urban Institute Tax Policy Center: Evaluating the Charitable Deduction & Proposed Reforms, 6/2012

Calls to “Cut Spending in the Tax Code” and to reduce “Tax Expenditures”

National Commission onFiscal Responsibility and Reform(the “Deficit Commission”)

Option 1 – “The Zero Plan”• Eliminate all “tax

expenditures” (e.g. all itemized deductions)


Calls to “Cut Spending in the Tax Code” and to reduce “Tax Expenditures”

◦ Establish three rates: 15%, 25%, and 35%◦ Capital gains & dividends taxed as ordinary income

Shelved for lack of consensus at end of 2010

Option 1 – “The Zero Plan”• Eliminate all “tax

expenditures” (e.g. all itemized deductions)

Option 2 – “Reform”• Limit charitable deduction

with 2% AGI floor• Triple Standard Deduction

amount

National Commission onFiscal Responsibility and Reform(the “Deficit Commission”)


The charitable deduction is politically difficult to defend: deductions benefit the wealthy

Taxpayers will react to changes in the law by adjusting their behavior to account for increased costs of giving

The poor, the needy, and others who benefit from charitable organizations will be most directly affected by reductions in tax incentives for charitable giving

The Case for the Deduction


1913: Federal Income Tax enacted 1917: first charitable deduction – limited to 15% of

taxable income 1924: 100% deduction – for those who contribute

90% or more of taxable income 1969: current 50% / 30% AGI limits replace the 15% /

100% limits 1981-85: limited deductions temporarily allowed for

non-itemizers

History of the Charitable Deduction


would reduce both the total amount donated to charity and the total federal tax subsidy

but the reduction in the subsidy would exceed the reduction in charitable contributions

thus increasing federal revenue

CBO: Changing the deduction…


2000

Contribution $10,000

Income Tax saved 3,960

Cap Gains Tax avoided 1,600

After Tax Cost of Gift $4,400

Consider gift of $10,000 FMV stock with $2,000 basis from a donor in the highest tax bracket:

Effect of Deduction Cap


The real after tax cost of this contributionhas increased $900, or 20%

2000 2011

Contribution $10,000 $10,000

Income Tax saved 3,960 3,500

Cap Gains Tax avoided 1,600 1,200

After Tax Cost of Gift $4,400 $5,300



The real after tax cost of this contributionhas increased $1,600, or 36%

2000 2011 Proposed

Contribution $10,000 $10,000 $10,000

Income Tax saved 3,960 3,500 2,800

Cap Gains Tax avoided 1,600 1,200 1,200

After Tax Cost of Gift $4,400 $5,300 $6,000



The charitable deduction is not a matter of providing a reward or something of value to the taxpayer; rather it is a matter of encouraging those with financial means to use their wealth to help those without. This voluntary redistribution of wealth is a cornerstone of America’s philanthropic heritage.

PPP urges Congress to reject any proposals that would eliminate or limit the value of the charitable deduction.

PPP’s Position on Proposed Reforms



Perry Wasserman

501(c) STRATEGIES

PPP liaison in Washington, DC


PPP cooperates with these and many other organizations in advocacy activities

The Coalition

Nonprofit Sector Groups: Association of Fundraising Professionals, Alliance for Charitable Reform, Association for Healthcare Philanthropy, Association of Direct Response Fundraising Counsel, Council on Foundations, Council of Nonprofits, Independent Sector, Philanthropy Roundtable

National Charities: American Institute for Cancer Research, American Red Cross, Boys & Girls Clubs of America, Easter Seals, Jewish Federations of North America, National Association of Children’s Hospitals, National Catholic Development Conference, National Human Services Assembly, United Way

Higher Ed Groups: American Council on Education, Association of American Universities, Council for Advancement and Support of Education, Council for Christian Colleges & Universities, National Association of College and University Business Officers

Arts Groups: American Association of Museums, Association of Art Museum Directors, League of American Orchestras


Senate Democrats:Max Baucus (Montana)Kent Conrad (North Dakota) - retiringCharles Schumer (New York)Richard Durbin (Illinois)Sheldon Whitehouse (Rhode Island)

Key Policy-makers

Senate Republicans:Richard Burr (North Carolina)Saxby Chambliss (Georgia)Tom Coburn (Oklahoma)Bob Corker (Tennessee)Mike Crapo (Idaho)Orrin Hatch (Utah)Jon Kyl (Arizona) - retiringRob Portman (Ohio)Olympia Snowe (Maine) - retiringPatrick Toomey (Pennsylvania)

The coalition is especially seeking to educate and influence the following Senators


House RepublicansCharles Boustany (Louisiana 7th:

Southwest Louisiana, including Lafayette and Lake Charles)

Jim Gerlach (Pennsylvania 6th: Southeastern Pennsylvania, including Chester, Berks/Lehigh, and Montgomery)

Erik Paulsen (Minnesota 3rd: Western suburbs of Minneapolis and Saint Paul)

David Reichert (Washington 8th: Bellevue to Mount Rainier)

Aaron Schock (Illinois 18th:

Peoria, Springfield, Jacksonville)Pat Tiberi (Ohio 12th: Central

Ohio, including Delaware County and parts of Franklin and Licking counties)

Key Policy-makers

House DemocratsXavier Becerra (California

31st: Los Angeles)John Larson (Connecticut

1st: Hartford, Manchester, Torrington)

Sander Levin (Michigan 12th: Roseville, Southfield, Warren)

Chris Van Hollen (Maryland 8th: Rockville, Hyattsville)

…and the following Representatives


Information from PPP


• Last provision expired on December 31, 2011

• Senate Finance Committee has approved a two-year extension, to be considered by the full Senate in September

• What are the chances?

Charitable IRA Rollover update


“With so many Americans relying on, working for, and engaged in economic relationships with tax-exempt organizations, taxpayers should have confidence that tax-exempt organizations, especially charitable organizations, are operating efficiently and hopefully using good governance practices to maximize benefits provided to the community.” (Charles Boustany, R-Louisiana, Chair of Oversight Subcommittee of the House Ways and Means Committee)

• Congress examining the nonprofit sector’s “modes of operation” and IRS oversight of sector

• Series of hearings and letters from key Members of Congress

Oversight issues


Legislators seem interested in…

• issues related to PPA reforms

• IRS oversight capability

• political activities

• leading to larger discussion of breadth of 501(c) definitions and potential modification of Section 170

Oversight issues


IRS is interested in…

• Form 990/UBIT issues

• relationship between governance practices and tax compliance

• allegations of impermissible political intervention

• colleges and universities

• private foundations

Oversight issues


• Numbers and diversity of membership, to strengthen our national voice and base of information

• Responsiveness, when we send queries for info or calls to action

• Contacts—let us know about connections to policy-makers or to other influential organizations

• Support for positions taken by PPP and coalition partners

Councils can help PPP with…


• Educate members and local nonprofit community on key issues

• Encourage members to respond to surveys and calls for action (e.g., Survey of IRA Contributions)

• Share info about your government relations programs and activities on ppp-pres-l listserv

Councils can help their members…


PPP contacts

For help locating resources or sharing information and experience, contactBarbara Yeager at [email protected] Gillett at [email protected]

Contact information for Jon Ackerman and Craig Wruck is available in the PPP e-community.


mailto:[email protected]

mailto:[email protected]

council conversations august 16, 2012 government relations

Documents

philanthropic planning

tax expenditures

tax increases

bush tax rates

bush tax cuts

new health care tax

state estate tax

clintonera tax rates