1. Council Conversations August 16, 2012 Government Relations

2. Leadership Webinar Series ©2012, Partnership for Philanthropic Planning Next Series October 3New Program Formats (live at the conference) December 13PR and Earned Media February 15Research Incubator April 18Mentoring Programs June 20Councils Choice

3. ©2012, Partnership for Philanthropic Planning Jon Ackerman Law Officer of Jonathan Ackerman LLC Past chair and current member, PPP Board of Directors PPPs Government Relations Advisors

4. The 112 th Congress A Congress runs for two years To become law, legislation must be: Introduced in each chamber Referred to committee for study and action Passed in identical form by a majority vote Signed by the President All within the two-year term of a Congress © 2012 Partnership for Philanthropic Planning

5. The 112 th Congress Senate – 100 seats Democrats enjoy majority, but no control: 51 to 47 (including 2 independents who caucus with Democrats) House of Representatives – 435 seats Republicans have control: 242 to 190 (3 vacancies) © 2012 Partnership for Philanthropic Planning

6. Ways & Means Committee Chair: Dave Camp Senate Finance Committee Chair: Max Baucus © 2012 Partnership for Philanthropic Planning

7. The Republican majority in the House have indicated that they will pursue three main initiatives: Repealing the new health care bill Reducing the budget deficit Making government smaller House Ways and Means Chairman, Dave Camp (R-Mich.) stated last year that he sees a unique opportunity to overhaul the nations tax system in the next two years © 2012 Partnership for Philanthropic Planning

8. National Commission on Fiscal Responsibility and Reform Recommends eliminating all tax expenditures, including all itemized deductions Simplify key provisions to promote work, homes, health, charity, and savings while increasing or maintaining progressivity Eliminate all tax expenditures for business – lower rates © 2012 Partnership for Philanthropic Planning

9. Public Policy Outlook Tax reform – How extensive? Most Bush Tax Cuts expire in 2013 Promise to reduce taxes; resistance to tax increases Need to pay for healthcare reform, two wars, deficit Continuing concern over abuse of tax exempt status SFC Chair Baucus shares Senator Grassleys concerns over perceived abuses © 2011 Partnership for Philanthropic Planning

10. 20122013Obama Budget Sensible Estate Tax Act Estate Tax5.12 million1 million3.5 million1 million (indexed) Gift Tax5.12 million1 million 1 million (indexed) GST5.12 million1 million (indexed) 3.5 million1 million (indexed) Max. Tax Rate 35%55%+45%55%+ State Estate Tax 1 million Max. Tax Rate 16% © 2012 Partnership for Philanthropic Planning

11. 2012 2013 Social Security tax to 4.2% Bush tax rates 15% long term capital gain no phaseout itemized deductions AMT relief & extenders New health care act taxes (3.8%/0.9%) © 2012 Partnership for Philanthropic Planning

12. New Health Care Tax in 2013 if income over $200,000 ($250,000 joint returns) 3.8% investment income surtax 0.9% earned income (wages, etc.) The Bush Tax Cuts expire in 2012 Return to Clintonera tax rates in 2013 © 2012 Partnership for Philanthropic Planning

13. Maximum Tax Rates 20122013 Investment income 35%43.4% (39.6 +3.8) Earned income (wages - 1.45% health) 36.4%41.9% (41+.9) Dividends 15%43.4% (39.6+3.8) LT Capital Gains 15%23.8% (20+3.8)

14. DOUBLE BENEFIT FROM GIFT OF APPRECIATED L.T.C.G. PROPERTY << Avoid long-term capital gains cost << Charitable income tax deduction © 2012 Partnership for Philanthropic Planning

15. Donors in 2012 << 15%* LTCG Tax Rate << 35% Marginal Tax Rate * 25% - Depreciable real estate * 28% - Collectibles 50% © 2012 Partnership for Philanthropic Planning

16. Donors in 2013 << 23.8%* LTCG Tax Rate << 39.6% Marginal Tax Rate (3.8% surtax not avoided by charitable deduction) * 28.8% Depreciable real estate * 31.8% Collectibles 64.4% © 2012 Partnership for Philanthropic Planning

17. ©2012, Partnership for Philanthropic Planning Craig Wruck St. Cloud State University Past chair, PPP Board of Directors PPPs Government Relations Advisors

18. Assume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain): CashSecurities Top tax rate28%35%28%35% Contribution Income taxes saved Capital gains tax saved After-tax cost of gift Discount © 2012 Partnership for Philanthropic Planning

19. Assume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain): CashSecurities Top tax rate28%35%28%35% Contribution Income taxes saved Capital gains tax saved After-tax cost of gift Discount © 2012 Partnership for Philanthropic Planning

20. Assume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain): CashSecurities Top tax rate28%35%28%35% Contribution10,000 Income taxes saved2,800 Capital gains tax saved0 After-tax cost of gift$7,200 Discount28% © 2012 Partnership for Philanthropic Planning

21. Assume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain): CashSecurities Top tax rate28%35%28%35% Contribution10,000 Income taxes saved2,8003,500 Capital gains tax saved00 After-tax cost of gift$7,200$6,500 Discount28%35% © 2012 Partnership for Philanthropic Planning

22. Assume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain): CashSecurities Top tax rate28%35%28%35% Contribution10,000 Income taxes saved2,8003,500 Capital gains tax saved00 After-tax cost of gift$7,200$6,500 Discount28%35% © 2012 Partnership for Philanthropic Planning

23. Assume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain): CashSecurities Top tax rate28%35%28%35% Contribution10,000 Income taxes saved2,8003,5002,800 Capital gains tax saved001,200 After-tax cost of gift$7,200$6,500$6,000 Discount28%35%40% © 2012 Partnership for Philanthropic Planning

24. Assume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain): CashSecurities Top tax rate28%35%28%35% Contribution10,000 Income taxes saved2,8003,5002,8003,500 Capital gains tax saved001,200 After-tax cost of gift$7,200$6,500$6,000$5,300 Discount28%35%40%47% © 2012 Partnership for Philanthropic Planning

25. Assume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain): CashSecurities Top tax rate28%35%28%35% Contribution10,000 Income taxes saved2,8003,5002,8003,500 Capital gains tax saved001,200 After-tax cost of gift$7,200$6,500$6,000$5,300 Discount28%35%40%47% © 2012 Partnership for Philanthropic Planning

26. Assume a donor makes a contribution of $10,000, either cash or appreciated securities with basis of $2,000 ($8,000 gain): CashSecurities Top tax rate28%35%28%35% Contribution10,000 Income taxes saved2,8003,5002,8003,500 Capital gains tax saved001,200 After-tax cost of gift$7,200$6,500$6,000$5,300 Incentive or Subsidy?28%35%40%47% © 2012 Partnership for Philanthropic Planning

28. A tax subsidy that: Costs the treasury $46 billion per year Is not equitable Subsidizes wealthy taxpayers more than others Subsidizes charitable giving to some organizations (chosen by the wealthy) more than others © 2012 Partnership for Philanthropic Planning

33. Retain deduction for itemizers only but establish floor (either $500/$1000 or 2%) Allow all taxpayers to claim deduction (with or without a floor) Replace deduction with a credit (at either 25% or 15%) with or without a floor All options would reduce charitable giving … but the reduction in giving would be less than the reduction in subsidy © 2012 Partnership for Philanthropic Planning

34. Replace w/ 15.25% Refundable Credit 22% Cap on Deduction Current Law w/ 1% AGI Floor Above the Line Deduction w/ 1.7% AGI Floor Income Lowest quintile 13.6%0.0%0.4%1.1% Second quintile 11.3%0.0%-0.1%3.9% Middle Quintile 7.3%-0.1%-0.3%3.4% Fourth Quintile 1.8%-0.6%-0.7%2.1% Top Quintile -9.6%-5.7%-1.3%-1.6% Revenue Change ($ billions) $10.1$9.9$10.5$10.7 Giving Change ($ billions) -$8.4-$7.4-$1.9$0.0 Urban Institute Tax Policy Center: Evaluating the Charitable Deduction & Proposed Reforms, 6/2012

35. Calls to Cut Spending in the Tax Code and to reduce Tax Expenditures Option 1 – The Zero Plan Eliminate all tax expenditures (e.g. all itemized deductions) © 2012 Partnership for Philanthropic Planning

36. Calls to Cut Spending in the Tax Code and to reduce Tax Expenditures Establish three rates: 15%, 25%, and 35% Capital gains & dividends taxed as ordinary income Shelved for lack of consensus at end of 2010 Option 1 – The Zero Plan Eliminate all tax expenditures (e.g. all itemized deductions) Option 2 – Reform Limit charitable deduction with 2% AGI floor Triple Standard Deduction amount © 2012 Partnership for Philanthropic Planning

37. The charitable deduction is politically difficult to defend: deductions benefit the wealthy Taxpayers will react to changes in the law by adjusting their behavior to account for increased costs of giving The poor, the needy, and others who benefit from charitable organizations will be most directly affected by reductions in tax incentives for charitable giving © 2012 Partnership for Philanthropic Planning

38. 1913: Federal Income Tax enacted 1917: first charitable deduction – limited to 15% of taxable income 1924: 100% deduction – for those who contribute 90% or more of taxable income 1969: current 50% / 30% AGI limits replace the 15% / 100% limits 1981-85: limited deductions temporarily allowed for non-itemizers © 2012 Partnership for Philanthropic Planning

39. reduceamount donated to charity would reduce both the total amount donated to charity and the total federal tax subsidy but the reduction in the subsidy would exceed the reduction in charitable contributions thus increasing federal revenue © 2012 Partnership for Philanthropic Planning

40. 2000 Contribution$10,000 Income Tax saved3,960 Cap Gains Tax avoided1,600 After Tax Cost of Gift$4,400 Consider gift of $10,000 FMV stock with $2,000 basis from a donor in the highest tax bracket: Effect of Deduction Cap © 2012 Partnership for Philanthropic Planning

41. The real after tax cost of this contribution has increased $900, or 20% 20002011 Contribution$10,000 Income Tax saved3,9603,500 Cap Gains Tax avoided1,6001,200 After Tax Cost of Gift$4,400$5,300 Consider gift of $10,000 FMV stock with $2,000 basis from a donor in the highest tax bracket: Effect of Deduction Cap

42. The real after tax cost of this contribution has increased $1,600, or 36% 20002011Proposed Contribution$10,000 Income Tax saved3,9603,5002,800 Cap Gains Tax avoided1,6001,200 After Tax Cost of Gift$4,400$5,300$6,000 Consider gift of $10,000 FMV stock with $2,000 basis from a donor in the highest tax bracket: Effect of Deduction Cap

43. The charitable deduction is not a matter of providing a reward or something of value to the taxpayer; rather it is a matter of encouraging those with financial means to use their wealth to help those without. This voluntary redistribution of wealth is a cornerstone of Americas philanthropic heritage. PPP urges Congress to reject any proposals that would eliminate or limit the value of the charitable deduction. PPPs Position on Proposed Reforms © 2012 Partnership for Philanthropic Planning

44. ©2012, Partnership for Philanthropic Planning Perry Wasserman 501(c) STRATEGIES PPP liaison in Washington, DC PPPs Government Relations Advisors

45. PPP cooperates with these and many other organizations in advocacy activities The Coalition Nonprofit Sector Groups: Association of Fundraising Professionals, Alliance for Charitable Reform, Association for Healthcare Philanthropy, Association of Direct Response Fundraising Counsel, Council on Foundations, Council of Nonprofits, Independent Sector, Philanthropy Roundtable National Charities: American Institute for Cancer Research, American Red Cross, Boys & Girls Clubs of America, Easter Seals, Jewish Federations of North America, National Association of Childrens Hospitals, National Catholic Development Conference, National Human Services Assembly, United Way Higher Ed Groups: American Council on Education, Association of American Universities, Council for Advancement and Support of Education, Council for Christian Colleges & Universities, National Association of College and University Business Officers Arts Groups: American Association of Museums, Association of Art Museum Directors, League of American Orchestras © 2012 Partnership for Philanthropic Planning

46. Senate Democrats: Max Baucus (Montana) Kent Conrad (North Dakota) - retiring Charles Schumer (New York) Richard Durbin (Illinois) Sheldon Whitehouse (Rhode Island) Key Policy-makers Senate Republicans: Richard Burr (North Carolina) Saxby Chambliss (Georgia) Tom Coburn (Oklahoma) Bob Corker (Tennessee) Mike Crapo (Idaho) Orrin Hatch (Utah) Jon Kyl (Arizona) - retiring Rob Portman (Ohio) Olympia Snowe (Maine) - retiring Patrick Toomey (Pennsylvania) The coalition is especially seeking to educate and influence the following Senators © 2012 Partnership for Philanthropic Planning

47. House Republicans Charles Boustany (Louisiana 7 th : Southwest Louisiana, including Lafayette and Lake Charles) Jim Gerlach (Pennsylvania 6 th : Southeastern Pennsylvania, including Chester, Berks/Lehigh, and Montgomery) Erik Paulsen (Minnesota 3 rd : Western suburbs of Minneapolis and Saint Paul) David Reichert (Washington 8 th : Bellevue to Mount Rainier) Aaron Schock (Illinois 18 th: Peoria, Springfield, Jacksonville) Pat Tiberi (Ohio 12 th : Central Ohio, including Delaware County and parts of Franklin and Licking counties) Key Policy-makers House Democrats Xavier Becerra (California 31 st : Los Angeles) John Larson (Connecticut 1 st : Hartford, Manchester, Torrington) Sander Levin (Michigan 12 th : Roseville, Southfield, Warren) Chris Van Hollen (Maryland 8 th : Rockville, Hyattsville) …and the following Representatives © 2012 Partnership for Philanthropic Planning

49. Last provision expired on December 31, 2011 Senate Finance Committee has approved a two-year extension, to be considered by the full Senate in September What are the chances? Charitable IRA Rollover update © 2012 Partnership for Philanthropic Planning

50. With so many Americans relying on, working for, and engaged in economic relationships with tax-exempt organizations, taxpayers should have confidence that tax-exempt organizations, especially charitable organizations, are operating efficiently and hopefully using good governance practices to maximize benefits provided to the community. (Charles Boustany, R-Louisiana, Chair of Oversight Subcommittee of the House Ways and Means Committee) Congress examining the nonprofit sectors modes of operation and IRS oversight of sector Series of hearings and letters from key Members of Congress Oversight issues © 2012 Partnership for Philanthropic Planning

51. Legislators seem interested in… issues related to PPA reforms IRS oversight capability political activities leading to larger discussion of breadth of 501(c) definitions and potential modification of Section 170 Oversight issues © 2012 Partnership for Philanthropic Planning

52. IRS is interested in… Form 990/UBIT issues relationship between governance practices and tax compliance allegations of impermissible political intervention colleges and universities private foundations Oversight issues © 2012 Partnership for Philanthropic Planning

53. Numbers and diversity of membership, to strengthen our national voice and base of information Responsiveness, when we send queries for info or calls to action Contactslet us know about connections to policy- makers or to other influential organizations Support for positions taken by PPP and coalition partners Councils can help PPP with… © 2012 Partnership for Philanthropic Planning

54. Educate members and local nonprofit community on key issues Encourage members to respond to surveys and calls for action (e.g., Survey of IRA Contributions) Share info about your government relations programs and activities on ppp-pres-l listserv Councils can help their members… © 2012 Partnership for Philanthropic Planning

55. For help locating resources or sharing information and experience, contact Barbara Yeager at byeager@pppnet.orgbyeager@pppnet.org Belinda Gillett at bgillett@pppnet.orgbgillett@pppnet.org Contact information for Jon Ackerman and Craig Wruck is available in the PPP e-community. ©2012, Partnership for Philanthropic Planning