New year brings new tax worries for nation’s third-largest employment sector

Lawmakers’ failure to consider data on nonprofit sector could bring unintended consequences

A hand is shown holding a pen over the top of a blank 2018 tax form placed on the surface of a wood desk near a cup of strong coffee, a computer keyboard with the number pad visible and the wireless mouse placed to the right of the hand.
Photo: Cristina Wright

The start of a new year also signals the start of tax season, and 2019 brings with it a heightened sense of uncertainty for the nonprofit sector as it braces for the full effect of tax reform.

The 2017 Tax Act included sweeping changes that will likely deal a hard financial blow to nonprofit organizations. Among many regulations, the law doubles the standard deduction — which will sharply reduce the percentage of taxpayers who are able to use the charitable deduction from about 21% to just 9% — and could reduce charitable giving by nearly $15 billion.

It also doubles the exemption on estate taxes, which could cause a drop in planned bequests by reducing the tax advantages. Moreover, the new law includes a staggering 21% unrelated business income tax (UBIT) on the expenses that tax-exempt nonprofits incur for providing employee transportation benefits, such as parking or transit passes.

Many nonprofit leaders say Congress and President Trump approved the law without serious consideration of data demonstrating the wide-ranging effects such regulations would have on the nation’s nonprofits.

“Left on their own, many policymakers often make inaccurate assumptions about the charitable community or forget about the sector entirely when making important decisions that affect nonprofit missions, the people served and communities at large,” said David Thompson, vice president of public policy at the National Council of Nonprofits. “How can an effective policy be crafted if lawmakers fail to consider the implications on the third-largest sector of the United States economy?”

One organization working to ensure that vital nonprofit sector data is produced regularly and made easily accessible is the Johns Hopkins Center for Civil Society Studies. Their Nonprofit Economic Data Project, a collaboration with the U.S. Bureau of Labor Statistics, charts nonprofit wages, employment and finances over time and in relation to other industries. In addition to producing regular analyses and reports, last year the NEDP launched an interactive database called Nonprofit Works, which allows users to generate customized reports based on national, state, county or industry-level nonprofit employment data. The Charles Stewart Mott Foundation provided a grant to support the project’s research and development.

Last week, NEDP released its 2019 Nonprofit Employment Report, which revealed that the nonprofit sector employs more than 12 million people and constitutes the third-largest workforce of any industry in the country — ahead of construction, transportation and finance. Further, the report indicated that, between 2007 and 2016, the number of jobs created by U.S. nonprofits grew by 16.7%, nearly four times faster than the country’s for-profit businesses. Such findings show that, in addition to affecting nonprofit organizations, the new tax law could affect a significant percentage of American workers if their employers’ have less to spend on wages.

“Policymakers at all levels are keenly interested in the economic prosperity of the regions they represent and the employment opportunities available to residents,” said Lester Salamon, director of the Johns Hopkins Center for Civil Society Studies. “Yet they are rarely aware of nonprofits as a significant source of such prosperity and employment because this kind of data has been unavailable. Armed with these data, nonprofits can thus approach legislators with a message geared to their central policy concerns.”

Salamon added that the issue also highlights the importance of nonprofits being informed about data regarding their own sector. He said nonprofit leaders are generally at a disadvantage in debates over policy that affects them because they rarely think of their sector in terms of its huge economic impact and dynamic growth.

“Nonprofits are often unaware of major trends affecting them,” Salamon said. “The information provided through the Nonprofit Works database can alert them to steps they might need to take to combat potential policy threats and even to unfair advantages that for-profit competitors might enjoy, such as superior access to investment capital.”

Salamon said that, in addition to its vital service contributions, the sector also has an important story to tell about its sizable and growing contributions to the economy. Going forward, he hopes the data and resources generated by the NEDP will help to inform policy decisions that affect the many lives touched by nonprofits.