The U.S. Senate’s tax reform bill, officially labeled the Tax Cuts and Jobs Act, might go to a floor vote as soon as tomorrow. Its likelihood of passing is still up in the air, with key Republican holdouts or undecideds, but its fate isn’t the only thing that’s uncertain—so is its potential impact on American workers and taxpayers. In particular, what will be the bill’s impact on nonprofit arts institutions and individual artists?
According to most nonprofit advocates, including Theatre Communications Group’s own department of Research, Policy & Collective Action, provisions in the Republican-backed tax bill as currently written would be disastrous for institutions that rely on charitable giving. Actors’ Equity Association has similarly stated that the tax bills would be terrible for individual artists accustomed to deducting work-related expenses.
Charitable giving takes a hit on two fronts: First, the bill would double the standard deduction most taxpayers and households can claim instead of itemizing their deductions, which would effectively reduce a powerful incentive for charitable giving, and, advocates estimate, could shrink giving to the work of all nonprofits by $13 billion or more per year. Secondly, while the Senate tax bill maintains the estate tax, it doubles the exemption to $11 million for individuals and $22 million for couples, which is likely to have a similarly chilling effect on charitable estate planning.
Meanwhile, a plan to repeal all miscellaneous itemized deductions (apart from some educator expenses) would hit freelance artists where they live, as Sandra Karas, a tax attorney and treasurer for Actors’ Equity Association, pointed out in a recent statement.
“Actors often incur significant expenses such as transportation costs when they audition or work out of town,” Karas said. “Actors routinely pay for advertising materials like headshots and website hosting. There are many other costs to working on the stage, including commissions to agents. Itemized deductions help level the playing field for workers like actors who are required to spend a large portion of their income on business expenses. Eliminating miscellaneous itemized deductions would be devastating to tens of thousands of our members by lowering their incomes and raising their taxes.”
Nonprofit advocates are also concerned about other provisions in the bill. The loosening of the Johnson Amendment barring nonprofits from political activity, for instance, would allow churches, foundations, and arts organization to engage in partisan electioneering, thereby eroding the public’s trust in tax-exempt charities. Changes to the unrelated business income tax (UBIT) could hit nonprofits with extra tax liability.
About the only bright spot for nonprofits in the current raft of tax proposals came in October, with the introduction by U.S. Representative Mark Walker (R-N.C.) of the Universal Charitable Giving Act, which would allow taxpayers to claim an above-the-line deduction of their charitable giving of up to a third of the standard deduction total (currently $6,000 for individuals and $12,000 for couples, numbers that will double to $12,000 and $24,000, respectively, in the new tax bill, which means that the charitable deduction caps under a new tax code could run as high as $4000/$8,000). This proposal, which would dramatically extend charitable incentives to lower and middle-income taxpayers, has not been adopted in the House version of the bill, but there is still hope that Senator Lankford (R-OK) will introduce his Universal Charitable Giving Act as an amendment to the tax reform bill on the Senate floor.
Urge your representative to protect charitable giving. Your local theatre, not to mention your own bank balance, may depend on it.