This month, three major panels have released high-profile plans to reduce the federal deficit and balance the budget within the near future. While the press has focused on some of the more high-profile topics like raising taxes or defense spending, the plans, if implemented as written, would have an impact on nonprofits and nonprofit governance:
The Bowles-Simpson Plan – The Bowles-Simpson plan is actually the plan of the two co-chairs of the presidential deficit commission. For the plan to become a formal recommendation, it must be approved by 14 of the 18 commissioners, after which Congress would vote on its implementation in its entirety. Within the plan are the following items that could impact nonprofit organizations:
- The plan would begin making serious changes in 2012, allowing for two years of economic recovery
- It aims to stabilize the debt by 2014 and balance the budget by 2037
- The plan has three options for overall tax reform.
- Option 1 would reduce the code to three individual rates and one corporate rate. All deductions would be eliminated but could later be added by Congress, with the difference made up by raising another tax rate.
- Option 2 would also have three individual rates, but eliminate the charitable deduction for any amount that is below 2% of the taxpayer’s income. The deduction for employer-sponsored health care would also be drastically reduced.
- Option 3 would make Congress promise to overhaul the tax code by making mandatory cuts in the rates of all deductions every year until the reform is passed.
- One of the options for stabilizing social security long-term is fully or partially taxing employer-sponsored health insurance.
The Bipartisan Policy Center Debt Reduction Task Force – This independent task force was chaired by former Senator Pete Domenici and Dr. Alice Rivlin. The task force is composed of a mix of former government officials, Hill staffers, and private sector experts. Among their recommendations are:
- Suspending the Social Security payroll tax in 2011 for both employers and employees.
- Establishing only two individual tax rates at 15% and 27%.
- Replacing the charitable tax deduction with a 15% refundable credit to the charitable organization. So if an individual wanted to give $1,000 to a charity, they would donate $850 and the other $150 would be supplemented y the federal government.
- Capping the exclusion of employer-provided health care in 2018, and phasing it out over 10 years.
- Imposing a “Debt Reduction Sales Tax” (i.e. national sales tax) of 6.5% on goods and services.
- Ending the individual business expenses tax deduction
- Changing tax-free retirement plans so that individuals are allowed to contribute up to 20% (maximum of $20,000 annually) to their plan, with those in the 15% bracket receiving a savings credit for contributions.
Committee for a Responsible Federal Budget – In their Getting Back in the Black report, the joint Peterson-Pew commission focused primarily on reforms to the federal budget process. Of note to nonprofits, however, is the enforcement mechanism to the plan. If the spending goals in the medium time frame are not met, the commission recommends a trigger for immediate spending reductions and tax increases. It is unknown how this would be done or what would be targeted for revenue.