A December of Challenges for Charities

by David L. Thompson

Businesses and governments in Arizona and across the country rely on charitable nonprofits to help build the communities we want and address critical needs of our fellow residents. Those charitable organizations rely on steady funding, stable laws and consistent court decisions to advance their missions and be the reliable partner that businesses and governments expect. This December, as nonprofits are looking back on the past year while looking ahead to 2019, uncertainty and change are the only constants; the outcomes of public policy challenges in the coming months will tip the difference in whether nonprofits can live up to business expectations and perform under government grants and contracts.

The issue grabbing most of the headlines is how the 2017 federal tax law will affect charitable giving and, thus, services in communities. The Tax Cuts and Jobs Act is predicted to cause 21 million fewer taxpayers to claim itemized deductions, meaning that giving to the work of charitable organizations could drop by $17 billion to $21 billion every year. Fewer resources means fewer people served, less engagement in communities and reduced purchases from local businesses by nonprofits. There are steps Congress could take to prevent this decline — such as enacting a universal or non-itemizer charitable deduction that would enable all American taxpayers to benefit for giving to charitable works, regardless of whether they itemize or take the standard deduction.

But, in addition to reducing giving, the 2017 tax law also imposes new taxes on tax-exempt organizations. In order to raise revenues to pay for other tax cuts, the law now requires charitable organizations, houses of worship, foundations and all other nonprofits to pay a 21-percent income tax on some of the expenses they and their employees have for transportation benefits, such as Valley Metro Rail passes and parking. Another tax targeting nonprofits requires organizations to pay taxes on each unrelated business activity they have and, unlike for-profit businesses, are now prohibited from applying the losses of one business line to cancel out profits in another “trade or business.” Both of these discriminatory new taxes are expected to divert billions from missions and from communities across the country at a time when revenues from charitable giving are also predicted to decline. 

As consummate optimists and natural problem solvers, nonprofits are looking to fix these challenges and reverse the trends they may launch. Yet, it doesn’t take a political scientist to realize that split government in Washington, D.C., means that big policy changes are off the table for the next two years. There’s hope for repealing the new taxes, with business community help. But what of the other big challenges, such as reforming social services programs and entitlements, fixing federal grantmaking and contracting systems, and balancing sound employment policies that directly affect operations and the well-being of employees? 

Charitable nonprofits recognize the same realities as others in the business community: To get anything done in the coming years, the action will be in state houses and city halls. For charities, that means promoting fiscally sound tax incentives for giving back; improved public policies that recognize and reflect the unique, cost-savings contributions nonprofits make to the economy every day; streamlined processes to allow for more effective partnerships; and workplace laws that treat nonprofits as equals in building Arizona’s quality of life.

David L. Thompson is vice president of public policy for the National Council of Nonprofits in Washington, D.C.

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