Policy Update

2006 Congressional Election and Its Effect on the Tax-exempt Community

December 2006

Source: Pricewaterhouse Coopers
Published December 2006

With the shift in power brought on by the midterm Congressional election, Democrats are expected to assume leadership of the Senate Finance and House Ways and Means Committees when the 110th Congress convenes in January. 

The specific effect that this change in power will have on tax policy as it pertains to tax-exempt organizations remains unclear. 

However, given the recent scrutiny of the tax-exempt sector by Congress, organizations should be ready to respond to any attention that Congress directs toward them.

Outcome of the Election

In November's Congressional election, Democrats gained enough seats in both the Senate and House to achieve a majority.  The outgoing Senate consisted of 55 Republicans and 45 Democrats.  The new Senate will have 51 Democrats (including two Independents) and 49 Republicans.  The outgoing House consisted of 229 Republicans, 201 Democrats, and one Independent (with four vacancies).  The new House will have at least 233 Democrats and 201 Republicans, with one seat yet undecided as of this writing.

The Finance Committee ratio of Democrats and Republicans has been adjusted to reflect the narrower Democratic majority in the Senate (changed from 11:9 to 11:10).  Approximately one quarter of the membership of the Ways and Means Committee will change as a result of the election. 

Finance Committee ranking minority member Max Baucus (D-MT) and Ways and Means Committee ranking minority member Charles Rangel (D-NY) will assume the chairmanships of their respective committees. 

Senator Chuck Grassley (R-IA), one of the primary drivers behind the recent scrutiny of the tax-exempt sector, will remain on the Finance Committee as the ranking minority member. 

Congressman Bill Thomas (R-CA), the outgoing Chairman of the Ways and Means Committee, is retiring from Congress.  Congressman Thomas had been a significant voice behind the perceived need for charity reform, particularly reform of tax-exempt hospitals and credit unions.  He also challenged the National Collegiate Athletic Association (NCAA) and college athletics in general, sending a sharply worded letter to the NCAA in October in which he asked it to justify its tax-exempt status and to which the NCAA sent a 25-page letter in reply. 

As one of his last acts in the House, Congressman Thomas introduced legislation (H.R. 6420) that would mandate certain minimum levels of charity care at tax-exempt hospitals.  The significance of the proposal is debatable due to his retirement.  Nevertheless, hospitals may find the proposed legislation of interest since it was Congressman Thomas’ last statement on the subject after several years of oversight and study.

New Members of the Tax-Writing Committees in the 110th Congress

House Ways and Means

Earl Blumenauer (D-OR)
Ron Kind (D-WI)
Bill Pascrell (D-NJ)
Shelley Berkley (D-NV)
Joe Crawley (D-NY)
Kendrick Meek (D-FL)
Chris Van Hollen (D-MD)
Allyson Schwartz (D-PA)
Artur Davis (D-AL)
Two additional Republican members to be appointed

Senate Finance

Maria Cantwell (D-WA)
Debbie Stabenow (D-MI)
Ken Salazar (D-CO)
Pat Roberts (R-KS)
 
Effect on the Tax-exempt Community

Congressional staffers, as well as members of the tax-exempt community, have speculated publicly that the interest of lawmakers in further scrutinizing tax-exempt organizations may remain stable or perhaps even recede. 

In the Senate

A staff member for incoming Finance Chairman Baucus indicated that "charity reform is very important to Senator Baucus" and "he will continue to provide oversight with regard to nonprofit organizations."  During a December oversight hearing on tax exemptions and incentives for higher education, Senator Baucus affirmed that issues related to education were a priority for him and promised to focus next year on college affordability and student access. 

He historically has worked in a bipartisan manner with outgoing Chairman Grassley.  In light of their relationship, Senator Baucus may cooperate with Senator Grassley’s pursuit of some of his issues as long as they do not conflict with the Democrats’ agenda for the Finance Committee. 

As previously mentioned, Senator Grassley has pushed for charity reform, and his staff has indicated that it will continue to pursue exempt organization-related issues, including tax-exempt hospitals, charitable governance, and executive compensation. 

Loss of a Charity Advocate

Exempt organizations lost one of their strongest advocates on the Finance Committee with the defeat of Senator Rick Santorum (R-PA).  Senator Santorum had worked hard for increased charitable giving incentives and generally served as a counter-weight to Senator Grassley’s scrutiny of charities.  Some of Senator Santorum’s proposals for charitable giving incentives were enacted in August as part of the Pension Protection Act of 2006.

In the House

On the other side of Capitol Hill, incoming Chairman Rangel remains undecided about whether to pursue charitable issues, according to staff of the Ways and Means Committee.  Congressman Rangel's focus currently centers on facilitating the Democrats' "Six for '06" legislative agenda, which prioritizes national security, jobs and wages, energy independence, affordable healthcare, retirement security, and college access. 

“PayGo” Budget Rule

House Democratic leaders have promised to reinstate a budget rule known as pay-as-you-go, or "PayGo," which would require that any new spending increases or tax cuts be offset by equal spending cuts or tax increases. 

Essentially, proposed legislation would have to be “budget neutral” and not add to the Federal deficit.  The reinstatement of the PayGo rule could have an indirect effect on the tax-exempt community when tax relief measures are considered next year. 

There are a number of previously proposed revenue-raising measures that would affect tax-exempt entities.  If Congress were to need revenue-raisers under the PayGo rule, some of these proposals could be revived, or Congress could consider new revenue-raising measures that could affect exempt organizations.

Final Thoughts

The makeup of Congress will shift significantly when it convenes in January, and it is difficult to predict with certainty the level of emphasis that its members will place on issues affecting the tax-exempt community.  Nevertheless, the previous Congress increased its oversight of tax-organizations in general, and it passed several pieces of legislation that contained charity reform provisions and charitable giving incentives. 

The emphasis of the previous Congress on oversight and reform should serve as a reminder for organizations to remain alert to future oversight and the potential for legislative changes.
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The Georgia Center for Nonprofits monitors legislative activities and government policy issues that affect Georgia nonprofit organizations. Be sure to check out public policy updates and resources on the Georgia Center for Nonprofits Web site.