Controversial legislation that would levy new taxes on foundations, universities, and other nonprofits is making its way through Congress, with a vote expected by the full House in the coming days. Major trade associations, including the National Council on Nonprofits, the Council on Foundations, and the Philanthropy Roundtable, have called for the bill’s defeat.
But these pleas for unity and action are likely to fall on deaf ears. Intentionally or not, the legislation targets institutions that have limited popular support, especially in areas where Republican sensibilities prevail. Dean Zerbe, former senior counsel for the U.S. Senate Finance Committee, bluntly observed that the legislation is “a wipeout for the sector and those refusing to consider much-needed reform” of the field.
Under the proposed legislation, universities and colleges would be taxed based on endowment assets per students. At the high end, institutions with assets equal to $2 million per student would pay a 21 percent tax on their endowments. At the low end, institutions with less than $500,000 per student would pay no tax. Religious institutions, such as Notre Dame, would likely be excluded as well.
With a few exceptions, most of the colleges and universities that would pay increased taxes are in the Northeast or on the West Coast. Davidson College and Duke University in North Carolina, Grinnell College in Iowa, and Rice University in Texas are among the small number in more conservative states.
Given the negative publicity that elite higher education has received over the past two years, eliminating or lowering this tax will be a challenge. Harvard may contribute a great deal to American well-being, but the university’s reputation in many parts of the country declined as it navigated Gaza protests, leadership changes, and diversity, equity, and inclusion efforts.
The proposed tax on foundations will be equally difficult to reverse. The current 1.39 percent flat tax on net investment income for all foundations would be replaced with a tiered system linked to assets. Foundations with endowments of more than $5 billion would pay 10 percent on net investment income.
Grant makers with $50 million in assets or less — or about 98 percent of foundations — would see no change. Importantly, community foundations have always been excluded from this tax and will remain so under this legislation.
Opposition to new taxes on the wealthiest foundations will come up against a public increasingly wary of tax-subsidized philanthropy. In a poll last year by Inequality.org and the Giving Review, 83 percent of those surveyed agreed that taxpayers shouldn’t have to subsidize wealthy Americans to create permanent legacy foundations. Among conservatives, big foundations are viewed as leaning far to the left and supporting issues that are not relevant to most Americans.
The Food Bank Defense
One favored argument among nonprofit advocates is that any added tax on foundations will harm the “local food bank.” But a quick look at several large foundations’ grant making suggests that this will likely prove unconvincing.
In 2024, the Ford Foundation made no grants in 11 of the 24 states with Republican senators. No food banks or homeless shelters or community centers were recipients in any of these states.
The MacArthur Foundation had a somewhat better record in terms of geography, with only five red states failing to receive support. But its grantees in those states, such as Lone Star Legal Aid in Texas and the Indigenous-led NDN Collective in South Dakota, are hardly the types of organizations that appeal to conservative elected officials.
Some major philanthropies, such as the Lilly Endowment in Indiana and the Kellogg Foundation in Michigan have significant involvement in red states. But for most Republicans, the Ford, Rockefeller, and Open Society foundations are the marquee names and the objects of their criticism.
A recent op-ed in the Chronicle of Philanthropy urged local groups in Republican districts and states to raise the alarm with their House and Senate members in part because of a possible plan to limit charitable status to “basic needs organizations,” such as churches and food pantries. That plan ultimately was not included in the bill, but small and mid-sized nonprofits have little reason in any case to join national efforts to oppose the legislation. Their donors are often individuals, community foundations, and small private foundations that would not see tax increases. Other elements of the bill, such as an expanded definition of the unrelated business tax and levies on compensation of more than $1 million, also aren’t likely to generate much outrage among this segment of the sector.
Scare Tactics
Both the Council on Foundations and the Philanthropy Roundtable have argued that a tax on endowments will result in less funding for small local organizations throughout the country. If community foundations were included or if the new excise tax was increased for all foundations, that might be a strong claim. As it is, scare tactics of this sort are unlikely to resonate with groups funded by local donors and community foundations.
The lack of political support for the nation’s wealthiest foundations and universities should be a cause for reflection by the associations that represent these institutions. The emphasis on a relatively small group of their wealthiest members creates the potential for divisions within these organizations and the sector as a whole.
One conclusion might be that they should simply wait until friendlier forces reassume power in Congress and the White House. But that approach would be shortsighted at best.
In a country so evenly divided politically, playing a partisan game will only increase criticism from conservatives. After the 2026 House and Senate elections, the outlook for elite universities and big philanthropy may be better, but for how long?
These institutions need a new strategy. That means acknowledging that the charitable sector is in serious need of reform and then coming up with politically viable proposals for addressing those concerns. These proposals might include increases in the distribution requirement for private foundations and limitations on the extent to which expenses count towards that requirement. Restrictions on foreign government donations to higher education and on foreign donors more generally would be another sound approach. And if they were really ambitious, they would come up with realistic ideas for limiting the involvement of charitable donors and nonprofits in election-adjacent activities.
The sector needs to recognize that nonprofits operate in a political environment and that their actions have political consequences. For too long, elite institutions saw themselves as shapers of politics and policy, not as the victims. The current political battle should finally disabuse them of that naïve notion.
