Late on Monday, June 16, the Senate Finance Committee released its portion of the Senate’s budget reconciliation legislation. Legislators and staff continue to work this week resolving procedural issues with the Senate Parliamentarian. Senate Majority Leader Thune (R-SD) has not yet backed off his intention to begin consideration this week, but negotiations continue behind closed doors on a wide range of outstanding issues.
For America’s charitable sector and the communities it serves, the latest draft marks a clear improvement from the bill that passed the House of Representatives last month. [See our latest chart comparing the two bills.]
Thanks to advocacy from Independent Sector members, our team, and a wide range of other key partners, two highly problematic provisions from the House bill are not included in the Senate version:
- An increased excise tax on private foundations
- A tax on nonprofit-provided parking and transit benefits for employees
These were among the four most damaging provisions, opposed by approximately 2,300 nonprofits across every state. We are encouraged by their removal.
However, the current bill under consideration would still do significant damage to nonprofit organizations’ ability to meet their missions. Despite adding trillions of dollars to the national debt, this legislation relies on the charitable sector as a source of revenue to fund other priorities.
Notably, the bill still includes several concerning provisions that were also in the House version:
1% Floor on Corporate Charitable Donations: This provision would deny corporations a charitable deduction for the first 1% of taxable income donated, discouraging giving—especially from smaller corporate donors. A new study by Ernst & Young, commissioned by Independent Sector, estimates this change could reduce charitable giving by $4.5 billion annually.
35% Limit on All Itemized Deductions: By limiting the value of all itemized deductions—including the charitable deduction—for high-income taxpayers, this provision reduces the incentive to give among some of the most generous donors. Forthcoming research from the Lilly Family School of Philanthropy at Indiana University estimates it could reduce giving by $4.1-$6.1 billion per year.
These are not the only tax provisions that use the charitable sector as a source of revenue. Moreover, the impact of this legislation on our sector goes far beyond tax issues, with major changes to Medicaid, nutrition assistance, and student loan programs—all of which directly affect the people and communities nonprofits serve.
Notably, the legislation contains another seismic change to charitable giving—though this change has been scored by the official Joint Committee on Taxation as slightly decreasing federal revenue. The Finance Committee’s draft proposes a charitable deduction for taxpayers who do not itemize, capped at $1,000 for individuals and $2,000 for married couples filing jointly.
To offset the cost to Treasury, the bill introduces a 0.5% adjusted gross income (AGI) floor on charitable deductions for itemizers. For example, a household with $100,000 in AGI that donates $1,500 to charity would only be able to deduct the amount exceeding $500—resulting in a $1,000 deduction.
Independent Sector is grateful to the bipartisan group of legislators who have championed a charitable deduction for every American, and is especially appreciative of Sen. James Lankford (R-OK) for leading on this issue in the current bill. We are continuing to assess the impact of such a proposal on charitable giving—both total dollars donated and number of donors. This analysis will be critical to Independent Sector’s overall evaluation of the legislation.
If you have thoughts or questions about the substance of the legislation or the sector’s approach to shaping it, we are eager to connect at publicpolicy@independentsector.org.
Ben Kershaw is director of public policy and government relations at Independent Sector.
