A recent tax and spending bill, once referred to as “one big and beautiful bill,” has been approved by Congress and signed into law by President Trump. Starting next year, Americans can expect a number of changes in tax policy coming from this legislation.
Recently enacted, the law continues the tax cuts initiated in 2017 and adds new elements impacting deductions, overtime pay, charitable donations, and Medicaid services. Jon Fortt from CNBC points out that some of these changes might not be entirely positive.
University Donation
Changes in tax policy regarding university donations are significant, possibly more so than other regulations that have made it through Congress more easily.
For universities with smaller donations, the tax rate stays the same. However, schools receiving between $750,000 and $2 million in donations will see their fees rise to 4%. This rate doubles for institutions gathering over $2 million.
Universities with fewer than 3,000 students will be exempt from these taxes entirely.
As CNBC reports, “The tax increase will impact some of the leading research universities in the nation.” According to Sharon Epson, around 15 schools might feel the brunt of these higher taxes. In 2023, 56 universities reportedly contributed about $380 million under the donation tax.
To offset these tax implications, universities might rethink their donation strategies, potentially offering more scholarships to maintain their tax-free status and reduce the number of students incurring tuition fees.
Charitable Donations
This bill also has an effect on charitable contributions, which could change how individuals decide to give.
Charitable donations reached $590 billion last year, as noted by Robert Frank from CNBC. The new rules aim to encourage average Americans to donate more, but they might also alter how affluent individuals engage since they account for a significant portion of these charitable gifts.
Frank explained, “To qualify for deductions, high-income earners need to exempt the first portion of their income intended for charity. For example, if someone earns $1 million annually, they can’t deduct the first $5,000 given to charity.”
Moreover, changes in deductions for those in the top tax bracket could deter some of America’s wealthiest donors from giving as generously.
Federal Deficit
The Congressional Budget Office has projected that the provisions in this bill will contribute to a deficit exceeding $3 trillion.
In response, Republicans and the Trump administration argue that the bill’s total cost should be seen in light of the fact that existing tax cuts are being extended. They claim that analyzing the fiscal impact of these cuts shouldn’t focus solely on the overall costs introduced by the GOP legislation.
Without a new bill, these tax cuts would expire at the end of the year. The CBO notes that it’s critical to consider how these tax credits will lead to significant losses in government revenue.
Experts believe there needs to be a common framework for evaluating tax cuts and their effects on the deficit.
“The irony lies in the fact that this new law introduces numerous tax cuts, including those on tips and overtime,” they said. “If you’re looking at adding, say, $4 trillion in new borrowing, it’s essential to be consistent in how you frame tax legislation, rather than zig-zagging in your explanations.”
For a deeper understanding of how the spending bill impacts various aspects of American life, check CNBC’s special report.
