WASHINGTON–Nonprofit organizations could be a “surprising loser” should Republicans take power following November’s elections, according to a new report.
“Republicans are eyeing higher taxes on universities, hospitals and other tax-exempt groups to help cover the massive cost of re-upping their expiring tax cuts,” Politico is reporting, referring to the Trump-era Tax Cuts and Jobs Act, provisions of which are to expire in 2025.
In conjunction with the report, the Defense Credit Union Council has sent letters to the Hill calling on Congress to defend the credit union tax exemption.
‘There Could be a Concern’
While the GOP has a longstanding antipathy toward tax hikes, the party has also put forward numerous proposals that would either create new taxes or create taxes on various sources, Politico stated, including “tax-exempt groups that can look a lot like for-profit businesses."
“If a section of society is being tax-free, and they’re providing the same services as someone who is being taxed, there could be a concern,” Rep. Randy Feenstra (R-IA), a tax writer in Congress told Politico. “If you have to expand the tax base, and you want to do it fairly, is this something that needs to be looked at?”
‘Plenty of Challenges’
Going after nonprofits still presents plenty of challenges, Politico noted.
“Republicans could generate a significant amount of savings, but probably only if they are willing to make bold, and likely hugely controversial, changes such as curbing the federal exemption from income taxes that hospitals, credit unions and other groups have long enjoyed,” the report stated.
Politico acknowledged, however, that lawmakers are keenly aware of how many tax-exempt entities are in their districts and home states.
“Our hope is common sense will take hold, and they will see the damage that will be done in communities if they try to extract any more resources from an already overstretched sector,” Rick Cohen, spokesperson for the National Council of Nonprofits, told Politico.
The Growing Deficit
The report noted the debate is occurring as the federal deficit continues to grow. The cost of current tax breaks that are set to expire is estimated at $4 trillion over the next decade, “and even that understates the budget challenges because it assumes lawmakers also roll over controversial pay-fors like the $10,000 cap on state and local tax deductions,” Politico added.
Defense Council Reaches Out to Congress
At the same time as the Politico report, the Defense CU Council said that as Congress contemplates expiring provisions from the Tax Cuts and Jobs Act (TCJA), the CU tax exemption should not be threatened. DCUC has sent letters to the House Ways and Means Committee, Senate Finance Committee, and both the House and Senate Armed Services Committees stressing preservation of the tax exemption.
"DCUC strongly opposes any move to tax credit unions. Credit union tax exemption is a vital recognition of the unique role these not-for-profit financial cooperatives have as compared to other financial institutions such as traditional, for-profit, banks," wrote Anthony Hernandez, DCUC president/CEO.
In its letter, the DCUC noted that, as affirmed by the NCUA and a 1979 IRS document, credit unions under IRC 501(c)(14) are distinct entities, “fulfilling their original purpose with a common bond among members and a commitment to serving low- and moderate-income individuals.”
‘Undermining the Mission’
"Taxing credit unions would undermine their mission and greatly hinder their ability to serve military and veteran communities, particularly in places where traditional banks have previously withdrawn," said Hernandez. "Upholding the current credit tax exemption is essential to preserving service member access to financial services for our troops. We thank Congress for its long history of recognizing the differences between banks and credit unions, particularly defense credit unions who serve our military and veteran communities.”