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Trump Tax Proposal Could Significantly Impact Charitable Giving

May 1, 2017

Last week, Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn introduced the Trump administration’s tax reform proposal in a bulleted one-page document. The administration is proposing a 15 percent rate on all business income, including corporations and individuals receiving business income from S corporations, partnerships, and other pass-throughs.

The broad overview calls for reducing the seven individual tax brackets to three tax brackets of 10 percent, 25 percent, and 35 percent, and providing tax relief for families with child and dependent care expenses. The current top rate for individual income tax is 39.6 percent. (President Donald Trump proposed a top rate of 33 percent during his presidential campaign.) There were no details offered on the income levels where these brackets would be set.

The standard deduction would double under the proposal, effectively reducing the number of taxpayers who would use itemized deductions (thereby simplifying the return filing process for many filers). Most individual deductions, including the state and local tax deduction, would be eliminated.  However, the Trump proposal retains the mortgage interest deduction and the charitable contribution deduction. The proposal also would repeal the alternative minimum tax, the estate tax, and the Affordable Care Act’s 3.8 percent tax on net investment income.

The plan is light on details, particularly on issues that impact students and universities, Matt Hamill, senior vice president for advocacy and issue analysis at NACUBO, told Inside Higher Ed last week. "Where the plan does intersect with higher education, there is a potential for some reduction in the amount of private support of colleges and universities if this were adopted as proposed," Hamill said.

Many nonprofit organizations and institutions are worried that simply preserving the existing charitable deduction isn’t enough. Reducing the number of itemizers by increasing the standard deduction could result in millions of taxpayers who will no longer be able to deduct charitable gifts on their returns.

NACUBO continues to urge higher education business officers to communicate with lawmakers and others about the value charitable giving, endowments, and access to tax-exempt bond financing bring to campus. 

As lawmakers continue to debate which issues should be considered in comprehensive tax reform, colleges and universities should be prepared to assess the impact the plan could have on students, families, employees, and campus operations. Republican lawmakers would like to pass comprehensive tax reform before the end of the year, but a clear path forward has yet to be found. Nonetheless, tax writers will be closely examining all elements of the current code as they piece together their legislation.

On Capitol Hill, in response to the Trump plan, House Speaker Paul Ryan (R-WI), Senate Majority Leader Mitch McConnell (R-KY), House Ways & Means Committee Chairman Kevin Brady (R-TX), and Senate Finance Committee Chairman Orrin Hatch (R-UT) issued this joint statement:

“The principles outlined by the Trump Administration today will serve as critical guideposts for Congress and the Administration as we work together to overhaul the American tax system and ensure middle-class families and job creators are better positioned for the 21st century economy. Lower rates for individuals and families will allow them to keep more of their hard-earned money and empower them to invest more in their future. Getting tax rates down for American companies, big and small, will create new jobs and make the United States a more inviting place to do business. With an eye toward fairness and simplicity, we’re confident we can rebuild our tax code in a way that will grow our economy, better promote savings and investment, provide our job creators with a competitive advantage, and bring prosperity to all Americans.”

Contact

Liz Clark
Director, Federal Affairs
202.861.2553
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