Five and a half weeks ago, I posted about a couple ways that the House tax bill would impact Mormons and the Mormon church. Since that time, the House passed its tax bill and the Senate passed its bill. The bills differed, so they went to a conference committee, where (GOP) Senators and Representatives tried to come up with a compromise that both houses of Congress could agree on.
And this afternoon, they released their bill; the GOP wants to pass it before Christmas.
Now, I haven’t had time to go through all 503 pages[fn1] of the bill; still, given that I did a preview of changes that would affect the church and Mormons, I thought I’d revisit them in light of the new tax bill.
I looked at three issues. The three issues are not a comprehensive discussion of things that might affect the church or members of the church, but they were significant. The issues I raised were (1) the increased standard deduction, (2) politicking, and (3) limits on the amount tax-exempt organizations can pay employees.
The Standard Deduction
Under current law, the standard deduction in 2018 will be $13,000 for married couples filing joint returns and $6,500 for unmarried taxpayers.[fn2]
The House bill would have changed that to $24,400 for joint filers. The conference bill is just below that: $24,000 for a married couple, and $12,000 for an unmarried individual.
I didn’t mention it in the last one, but along with this, the bill doubles the estate tax exemption to $10 million (at least until 2025).
Why does this matter to the church? Because both provisions will reduce incentives to give to charities. Why? A couple reasons. First, taxpayers can choose either the standard deduction or itemized deductions. Under current law, only about 1/3 of taxpayers itemize (and therefore can deduct their charitable contributions). With the standard deduction nearly doubled (plus the limitations on deducting state and local taxes), only a fraction of current itemizers will continue to itemize. That group won’t get any tax benefit from giving to charities, including the church.
Moreover, under the bill, individuals can leave $10 million to their heirs tax-free; that significantly reduces the number of decedents with an incentive to leave bequests to charity. And, while I don’t know how much revenue the church raises from members’ bequests, it provides assistance to those who want to leave money to the church in their wills.
Politicking
Remember the Johnson Amendment, that prohibition on tax-exempt organizations supporting or opposing candidates for office? The one Trump promised to eliminate? The one that the House bill initially rolled back for churches, and then for tax-exempt organizations in general?
Well, under this bill, it’s still here. Churches and other tax-exempt organizations will continue to be prohibited from supporting or opposing candidates for office if they want to keep their tax exemptions.[fn3] So don’t expect the church to jettison its political neutrality statement in the wake of the passage (if it passes) of the new tax bill.
Employee Compensation
Under the bill, tax-exempt organizations will owe an excise tax on compensation paid to employees to the extent that compensation exceeds $1 million.[fn4]
Honestly, I doubt this will affect the church; I really doubt the church pays any of its employees more than $1 million annually. In fact, I suspect that largely this provision will only be triggered by salaries paid to college football coaches and university presidents.
One Last Thing: Grad Students
A lot of BCC readers are grad students, or were grad students, or will become grad students, or have loved ones who are, were, or will be grad students. And there’s been a lot of outcry over the House’s plan to tax tuition waivers. (Mike and I wrote a piece about another side of the tuition waiver question over at Surly.)
So good news for you: that’s out. Tuition waivers will continue untaxed. Yay grad students!
[fn1] Yes, the PDF is 1097 pages. But the second half isn’t the bill—it explains where the House and Senate bills differed, and what they decided to do to come together.
[fn2] Note that the size of the standard deduction is indexed to inflation, so it changes every year. It’s also worth noting that, under the new tax bill, inflation adjustments move from CPI to chained CPI. Chained CPI grows more slowly than CPI, so moving to chained CPI is a stealth tax increase.
[fn3] Okay, that’s not entirely true. I mean, that’s the state of the law as it stands, but it’s terminally underenforced.
[fn4] The thought process here seems to be that publicly-traded corporations can’t deduct compensation to the extent it exceeds $1 million. IRC 163(m). Now, a tax-exempt organization isn’t really the equivalent of a publicly-traded corporation, but this provision kind of equates the two, at least in terms of compensation paid.