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Tax Law Changes Will Seriously Impact Nonprofits and the Rest of Us

Last week I attended the annual board retreat of NYCON, the New York Council of Nonprofits. There was considerable discussion of the pending tax bill in Congress. According to New York State Comptroller DiNapoli, federal spending in New York during 2016 included $55 billion in Social Security payments, $47 billion for Medicare and more than $46 billion for Medicaid and other safety net grants. Billions of federal dollars also supported transportation, education and veterans benefits programs. These funds comprise a substantial portion of the entire State budget. When the new tax law takes effect, federal spending in New York is expected to be impacted dramatically.

Most State spending is on education and healthcare. Those sectors also happen to be the largest employers in the State (also in Orange County). Reduced budgets will reduce those services and may also result in layoffs.

Many social services are the responsibility of counties rather than the State. Much of the burden of these reduced budgets will fall on them.

Reduced federal spending will increase pressure to raise State and local taxes (SALT). This will come at the same time that the new law will reduce or even eliminate the tax deductibility of SALT. That will increase the tax burden on our taxpayers.

These consequences will increase pressure to change or eliminate the New York State tax cap. There will be pressure to cut costs and services everywhere. There will be pressure for consolidation of services and mergers of New York’s countless tax districts, which include 950 school districts.

It is felt the tax changes are a calculated maneuver to punish states with high taxes and spending, to force such states to reduce taxes and spending, and to influence people to move to other states. One unanticipated consequence may be that red states turn purple.

Nonprofits that have contracts with New York State may be pressured to cut costs. They may have their funding reduced or cut entirely. Nonprofits may go back to experiencing painfully slow payments from the State. They may be pressured to merge and many may dissolve.

Donations from the middle class may be reduced. Nonprofits will rely more upon the wealthy. As the rich get richer with their new tax cuts, hopefully they will give more, but they may impose restrictions or seek influence.

These developments may allow nonprofits to energize their membership and Boards of Directors to greater activity. Boards of Directors, often fearful of strong public advocacy, may feel the need to embrace it. Although many people believe nonprofits are not permitted to engage in political activity, that is not true. Activity is permitted within certain limits. If the proposed repeal of the Johnson Amendment comes to pass, even more activity will be permitted.

All in all, big changes that will be very disruptive. Coming at a time when the economy and nonprofits are generally doing better than they have in many years.

People have asked, What can I do about this? Call your Senators and Representatives. Call other State’s Senators and Representatives. Sign petitions. Vote. Stay informed. Plan for the worst and hope for the best.


Gary Schuster is a Partner with the firm and practices Arts & Entertainment and Business Law. He can be reached by phone at 866-303-9595 toll free or 845-764-9656 and by email.

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