Mormons and the Tax Bill

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.

Comments

  1. Aussie Mormon says:

    Thanks for keeping us up to date Sam.

  2. EnglishTeacher says:

    I asked family members to pray that tuition would not be taxed, as my husband is in the process of PhD apps right now. It’s a Christmas miracle this is out!

  3. I wonder if this will affect BYU?

    “Private endowments tax: The bill includes a 1.4 percent excise tax on investment income at private colleges with an enrollment of at least 500 students and with assets valued at $500,000 per full-time student. That reflects the more narrow proposal included in the Senate bill. The House bill would have taxed colleges with assets valued at $250,000 per full-time student. The provision is estimated to raise about $1.8 billion in revenue over 10 years. Lawmakers have estimated it will affect about 35 institutions.“
    (HigherEd)

  4. Lois, that’s an interesting question, but my guess is it won’t affect BYU. BYU has a touch over 30,000 students, which means it would only have to pay the excise tax if it had assets worth more than $15 billion.

  5. It seems like the standard deduction is almost doubled, but individuals can now claim a personal exemption for themselves of $4,000+, which would be eliminated, so the total increase in the deduction is much more modest in reality.

  6. Why are we so worried about the billions that the church is hoarding?

  7. ” 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.” Could you please help me understand why itemizers won’t get any tax benefit from giving to charities?

  8. Joseph Stanford says:

    How about the increased national debt and greater tax burden for our grandchildren?

  9. anonymous LDS taxpayer says:

    On the itemizers and benefits…. by my calculations my personal family is among those whose taxes are likely to go up. We have itemized for years, as Tithing + mortgage income + State and property tax deductions far exceeded the standard deduction. The new standard deduction is still less than the itemized amounts, so we will keep itemizing…. only now we lose our personal exemptions, so far more of our income is exposed to taxation than before. I suspect that Sam is saying that for those who used to make a charitable donation (perhaps of appreciated property, for example for the tax benefit, as opposed to a desire to give thanks to God, say, might not bother making the donation.

    As for us, the loss of the personal exemptions is combined with only a 1% reduction in marginal rate (although we are now farther from crossing into the next bracket than we were), plus massively greater complexity in calculating small business taxes and personal AMT means that for us the tax bill is a huge unpleasant pain. I cannot imagine the disaster it must be for large families of young children. Not at all what the politicians promised.

    But count us also among the relieved about the grad student waivers…

  10. Thanks Sam.

    Another interesting viewpoint from a tax partner, at Baker McKenzie (told my husband) believes the tax bill actually makes it easier for “brick and mortar” companies to offshore jobs, in contrast to what Republican’s purported goal was—to create jobs here.