Advocates for the charitable sector say they’re working hard to remove harmful provisions from President Trump’s “big beautiful bill,” which passed in the House on Thursday.
But the lobbyists for foundations and nonprofits may need to pound the halls of the Senate just to keep things from getting worse. Even amid the increasing criticism of foundations and universities by many Republicans in recent years, the proposed taxes unveiled in the tax bill early last week surprised much of the nonprofit world.
Three of the biggest provisions affecting the sector — sharply higher taxes on big foundations and university endowments and a new floor requiring corporate giving to exceed 1 percent of profits before businesses can deduct charitable gifts — are estimated by the Joint Committee on Taxation to raise a combined $39 billion over 10 years. However, the committee’s methodology is unclear, and an independent analysis of the tax on private foundations suggests it could raise twice the committee’s estimate — or, to put it another way, drain billions more from funds that otherwise would eventually flow to operating charities.
The removal of a few disliked provisions earlier this week — especially the controversial section that would have allowed the Trump administration to revoke the tax-exempt status of any nonprofit deemed supportive of terrorists — heartened charity advocates. And many say they’re committed to doing all they can to get other damaging provisions removed from the bill, including the higher taxes on private foundations. The United Philanthropy Forum, a network of 100 philanthropy-infrastructure organizations that serve 7,000 foundations, is mobilizing its network through a new campaign and aims to reach legislators when they’re at home, including during the upcoming Memorial Day recess.
Meanwhile, Independent Sector, the Council on Foundations, the National Council of Nonprofits, and others are shifting their attention to the Senate, where Republican champions for the sector include Sen. James Lankford of Oklahoma, a big supporter of the charitable deduction. Republicans are aiming to get a bill to President Trump by July 4, but the real deadline could be August. The bill addresses the debt limit, which must be increased by August to prevent the country from running out of cash.
“We’re looking ahead to the Senate — they’ve made clear they’ll make changes,” says Diane Yentel, president of the National Council of Nonprofits. “We have opportunities there both to prevent some of the harm to nonprofits and to expand the bit of good.”
But in this year of unprecedented attacks against the charitable sector, things may be just as likely to go the other way. It’s possible lawmakers will seek more revenue to help pay for extending the 2017 tax cuts before the legislation is finalized — and, if so, they may try to get even more money out of the nonprofit sector.
Dean Zerbe, former senior counsel for the U.S. Senate Finance Committee, agrees with Chronicle columnist Craig Kennedy that the charitable sector invited the new attacks by failing to get serious about self-reform. And Zerbe says the revenue raised from the new taxes on the charitable sector is substantial enough that lawmakers may come back for more — either this year or in the future.
“It’s real money,” says Zerbe, who helped identify ways to raise revenue when he worked in the Senate. “Anyone involved in revenue raising would say, ‘We need to be looking at this area more.’”
Foundations left themselves vulnerable by failing to invest in advocacy and building relationships with lawmakers, says Steve Taylor, a long-time lobbyist and senior adviser to the Charitable Independence Initiative. Taylor says it’s notable that two of the top targets identified by influential analyst Scott Hodge as ripe for taxation — nonprofit hospitals and credit unions — are nowhere to be found in the new tax bill.
“That is a huge indication of their relative political strength,” Taylor says.
Foundations dithered, he says, fearing backlash from Trump or wary of crossing lines that limit political activity.
“No one wanted to step into this hot political environment of the past decade,” Taylor says. “It’s understandable, but it was a mistake. We’re paying the price with this bill.”
Here’s a deeper look at some of the major provisions in the legislation that affect the philanthropic and charitable sectors.
Higher Taxes on Private Foundations
An analysis by FoundationMark finds that roughly two-thirds of the new money raised by this proposed tax would fall on the 25 foundations with assets of $5 billion or more. That’s due to how the tax is structured — any foundations with assets under $50 million would see no change from the current 1.39 percent tax on net investment income. But the tax roughly doubles at each next tier — a 2.78 percent tax on foundations with $50 million to $250 million, a 5 percent tax on those with assets with $250 million to $5 billion, and the dreaded 10 percent tax for the 25 foundations at the top.
While the Joint Committee on Taxation finds that the tax on foundations would raise about $16 billion over 10 years — or about $1.6 billion a year — the FoundationMark analysis suggests it could raise much more. Simply applying the new tax rates to the taxes paid in 2023 — the latest year for which full data is available — suggests that the new tax rates may cost private foundations closer to a combined $3.9 billion per year, up from the roughly $1 billion they paid in 2023 under the previous 1.39 percent flat rate.
The biggest foundations would see their tax burden shoot up by more than seven times the current rate. For example, the Robert Wood Johnson Foundation, which paid $14 million in taxes in 2023, would pay nearly $103 million on the same amount of net investment income under the new rate.
Foundations are likely to explore ways to avoid the tax. John Arnold, a co-founder of Arnold Ventures, posted on X that he doesn’t necessarily oppose the tax — after all, his foundation’s public-finance unit recently hired Hodge, an advocate for taxing most of the revenue in the nonprofit sector. But he worries that the bill’s wording gives foundations an easy out — simply divert funds to donor-advised funds, which aren’t subject to the tax.
“By only taxing private foundations and not DAFs, the former will roll into the latter,” Arnold writes. “Any tax law should apply to DAFs and foundations equally, else it does more harm than good.”
John Seitz, FoundationMark’s CEO, says the new taxes will create a burden for both foundations and the Internal Revenue Service, as foundations try to find legal ways to dodge the tax and the IRS ramps up enforcement. Foundations may pursue arcane strategies using stock options to generate funds for their mandatory 5 percent distributions while minimizing the net investment income that is used in the taxation calculation. Some foundations, Seitz says, may create an entirely new position focused on tax minimization.
Like Arnold, Seitz suspects that some foundations will roll over their assets into donor-advised funds — and that wealthy individuals will increasingly contribute to DAFs rather than private foundations. DAFs don’t have to disclose grants or make any required annual distributions.
“The really damaging thing isn’t only the money — it’s the transparency,” Seitz says. “You’re pushing money into dark pockets — and that money doesn’t have to come out at any prescribed time.”
Jenn Holcomb, vice president of government affairs and legal resources at the Council on Foundations, says the council is working hard to make sure legislators understand the impact the new tax will have on operating charities. The council is also working with Candid and other partners on research to share with lawmakers.
“As understanding continues to ripple out, I’m optimistic that Congress will see the real harm that could be caused to the charitable sector and find a different option or take this out of the bill completely,” Holcomb says.
1 Percent Floor on Corporate Donations
This provision requires companies to give at least 1 percent of their taxable income to charity before they can begin taking any deduction for charitable giving. Unlike some other taxes targeted at the sector, this one appears to have no ideological basis and seems designed simply to generate revenue. It’s expected to raise $16.6 billion over 10 years.
The 1 percent threshold is higher than the typical giving rates for companies. Chief Executives for Corporate Purpose (CECP) found that the median company gave slightly under 1 percent of pre-tax profits to charity in 2023.
“These proposed restrictions risk weakening the very fabric of corporate giving in America,” says Kari Niedfeldt-Thomas, CECP’s chief operating officer.
And unlike the provisions affecting private foundations and charities, this provision cuts no slack based on size: The smallest companies will face the same 1 percent threshold as mega-corporations.
Niedfelt-Thomas says that while companies don’t give solely because of a tax break, smaller and less profitable companies may be among the first to cut charitable contributions if they have no added tax incentive. That may affect donations to everything from Little League to rural work-force-development programs.
“When disaster strikes in a local community — and companies want to be able to respond charitably — will this make them think twice about it?”
Higher Taxes on College Endowments
The proposed tax rates on college endowments exceed those proposed for private foundations, but the private-foundation tax is expected to raise more money for Congress because more money sits in foundations than in college endowments.
The tax rate would stay at the current 1.4 percent for institutions with endowments worth $500,000 to $750,000 per student but rise to 7 percent for the $750,000 to $1.25 million band, 14 percent for the $1.25 million to $2 million band, and 21 percent for the handful of endowments with more than $2 million per student.
Many of the universities that would face the biggest hits are also suffering from cuts in research grants amid the ongoing ideological spat with the Trump administration. Harvard and Princeton, among others, have cited that one-two punch in recent announcements about hiring freezes and possible layoffs.
The endowments tax is expected by the Joint Committee on Taxation to raise about $6.7 billion over 10 years, a relatively small amount in a bill worth trillions.
“It just goes to show you that the motivation is not necessarily raising revenue to pay for these tax cuts, but it’s more a motivation to go after these institutions directly,” says Brian Flahaven, vice president for strategic partnerships at the Council for Advancement and Support of Education.
Cuts to Safety Net Programs
The bill would reduce spending on Medicaid and food assistance. The left-leaning Center on Budget Policy and Priorities estimates that as many as 15 million people may lose health insurance by 2034. Food assistance for 40 million people, including children, seniors, and disabled people, would drop by $300 billion through 2034, CBPP estimates.
“The changes would really be devastating for many of the low-income people that so many nonprofits serve, just at a time when nonprofits are having their revenue deeply cut by the administration and potentially through this tax-reform legislation,” Yentel says.
Ben Kershaw, Independent Sector’s director of public policy and government relations, says there’s hope that the Senate may reduce some of the cuts. “There’s considerable skepticism in the Senate about structural changes to Medicaid,” Kershaw says. “The conventional wisdom is that the Senate’s Medicaid changes and cost savings will be significantly lower.”
Mixed News on Charitable Incentives
The increase in the standard deduction in 2017 sharply reduced the share of taxpayers who receive a tax benefit from their giving, and advocates for the charitable sector have been pushing hard since then to get an “above the line” deduction that non-itemizers can use. The tax bill includes a very small deduction — $150 for individuals and $300 for couples — that would be available through 2028. Flahaven describes the modest incentive as a “toehold” that might be raised by the Senate this year, or could be increased over time.
“The hardest part is getting in the code,” Flahaven says. “We knew it would be an uphill battle to get this in at the level that we would like to see, given the cost constraints and other priorities. But $150 and $300 is certainly better than zero.”
Zerbe calls the incentive a “damp squib” — a disappointing outcome after the sector built expectations for something much greater. Lankford and Sen. Chris Coons, a Democrat from Delaware, have introduced legislation multiple times in recent years calling for significantly higher deductions. The dollar amounts in the tax bill are just 3 percent of the $5,000 and $10,000 levels the two senators sought in their most recent bill, introduced in January.
And that modest bit of good news is offset somewhat by reduced giving incentives for the wealthy — a group that, for better or worse, is increasing the total dollars going to charity even as the number of everyday donors dwindles. The tax bill would limit the value of itemized deductions to 35 percent of income — reducing the giving incentive received by donors in the highest 37 percent tax bracket (income above $751,000 for couples).
Says Kershaw, at Independent Sector: “By limiting the value of itemized deductions, you’re limiting the value of the charitable deduction for some of the most generous Americans.”
