Photo by Chris Baker. CC BY 2.0.
On Thursday, the House released H.R. 1, its fundamental tax reform bill. (It also released an 82-page summary of the 400+-page bill, and a 300-page JCT report on the bill.)
Now, the bill that has been presented isn’t the law that will be enacted (if any is enacted); the House is scheduled to start marking the bill up today. Still, it presents a view of the House Republicans’ vision for tax reform. I wanted to highlight three provisions that would directly impact the church and Mormons as a result of their religious practices.
Doubled Standard Deduction
The bill would double the standard deduction to an inflation-adjusted $24,400 for married taxpayers filing jointly. How would this affect Mormons and the church?
It reduces the economic incentive (and the tax savings) for tithepayers. See, while it continues to allow a deduction for charitable donations, the charitable deduction is an itemized deduction. And taxpayers have to choose between the standard deduction and itemized deductions. Taxpayers generally only itemize where the value of their itemized deductions exceeds the value of the standard deduction.
At the same time it doubles the standard deduction, the bill eliminates all but three itemized deductions. All that’s left is the charitable deduction, the mortgage interest deduction, and a deduction for property taxes (which is capped at $10,000 a year). To itemize, then, and be able to deduct tithing and other offerings, a taxpayer would have to have more than $24,400 in charitable contributions, mortgage interest, and property taxes.
Under current law, only about 1/3 of taxpayers itemize. I don’t know what proportion of taxpayers would with the expanded standard deduction, but I suspect it would be far fewer.
Does that matter, though? You may argue that taxpayers will be better off, since they’ll have a much larger amount free from taxes, and that may be true. But charitable giving is elastic; one estimate found that the increased standard deduction would lead to 28 million fewer itemizers, and up to $13 billion less in charitable giving.
And how does that affect the church? It’s unclear; what is clear, though, is that church leaders support a robust deduction for charitable giving. Limiting that deduction would likely reduce the church’s revenue; its impairment would, according to Elder Oaks, “pose[] a question about the nature and future of America.”[fn1]
Politics From the Pulpit
The bill would modify the so-called Johnson Amendment that prevents churches (and other tax-exempt organizations) from supporting or opposing candidates for office.
It wouldn’t fully eliminate it; instead, it provides that churches and their integrated auxiliaries wouldn’t be deemed to have supported or opposed a candidate for office as a result of any “homily, sermon, teaching, dialectic, or other presentation made during religious services or gatherings.” For this exception to the general rule to apply, the statement would have to be in the ordinary course of the church’s regular and customary activities, and couldn’t cause the church to incur more than a de minimis additional expense in doing so.
Leaving aside the question of the importance or the constitutionality of this change, what would it mean for Mormonism? Possibly nothing; the prohibition is nearly never enforced against churches, and our church’s neutrality statement instructs church leaders to avoid doing things that would risk violating the rule, and the church has previously announced that loosening the restriction wouldn’t affect that policy.
But it does mean that your bishop or stake president could theoretically get up on a Sunday and endorse candidate Joe Biden; it could also mean that a General Authority could endorse candidate Mike Pence at Conference.
Pay Limits
Okay, so this one almost certainly doesn’t affect the church. The law would impose an excise tax on tax-exempt organizations that pay employees more than $1 million. Tax-exempt organizations would owe a 20% tax on salaries in excess of that $1 million ceiling.
There’s no reason to believe that provision is aimed at churches (my first thought was college football coaches), but it doesn’t exempt churches from its coverage.
Family Values
Okay, this is a fourth thing, and I’m not going to go into detail, except to say that the changes are tremendously unfavorable to families. It eliminates deductions for adoption, it replaces personal exemptions with tax credits that disappear after five years, etc. (My friend, colleague, and coblogger Francine Lipman runs the family provisions down in more detail here.)
[fn1] It’s also worth noting that the plan would phase out, then eliminate, the estate tax, which is another significant incentive toward charitable giving.