Now that tax reform is a reality, you may be wondering, like many taxpayers, how the new law will impact your bottom line. It’s our view that the tax overhaul falls short of providing relief to low and middle income families, as well as donors to charity. Here are four ways tax reform impacts communities and nonprofit organizations throughout the country.
1. Strengthens the Child Tax Credit for some taxpayers.
The CTC, which offsets taxes for families with children, increased from $1,000 to $2,000 per qualifying child, and up to $1,400 was made refundable. Also, workers are now eligible for the CTC after $2,500 in earnings (instead of $3,000), making it slightly more accessible. Despite these minimal changes, the CTC could do more to support low-income earners. Congress should continue to strengthen the CTC by counting the first dollar earned and making the credit fully refundable.
2. Retains the Earned Income Tax Credit, but not for everyone
The EITC remains untouched in the new law, meaning low and moderate-income working families will still receive a refundable credit to offset federal payroll and income taxes. Yet the EITC still largely excludes workers that aren’t raising children at home like non-custodial parents still paying for child expenses, veterans returning home to find stable ground, and students paying for their own higher education.
This year, Congress should build on the success of the EITC by increasing the maximum credit for workers not raising children at home, and lowering the age of eligibility to 21.
3. Reduces charitable giving incentives for millions of Americans
The law fails to address the unintended consequences that doubling the standard deduction will have on charitable giving. There were last minute changes to the bill that will enable additional Americans to itemize, and therefore not be taxed on their donations to charities, but nonprofit organizations are still projected to lose billions of dollars in donations. This means less resources to support private food banks, homeless or domestic violence shelters, provide daycare, or job training.
A universal charitable deduction available to all Americans would have bolstered the non-profit sector through financial security, allowing charities to help more of those in need. Congress should continue to work to create a universal deduction in 2018.
4. Jeopardizes federal programs millions of Americans depend on.
Both the tax bill and budget resolutions pave the way for $1.5 trillion in cuts to federal programs. United Way is concerned these cuts will be made to the education, financial stability, and health programs critical to the individuals and communities we serve. Reports are that Medicaid and SNAP are the most vulnerable. Congress should not dismantle or restrict access to these programs that support Americans struggling to make ends meet.