Two Republican senators and a broad bipartisan coalition of funders and nonprofits prevented a 600% increase in taxes levied on the endowments of the largest private foundations as part of President Donald Trump’s tax and spending legislation.
Thanks to their support, when Trump signed the bill into law on July 4, taxes went up on the endowments of the largest universities, but not on the endowments of philanthropic foundations.
“I do have to say that this took some persuasion,” said Sen. Todd Young of Indiana in an interview with The Associated Press. The other champion was Sen. James Lankford of Oklahoma, who did not respond to an interview request.
Together, they advocated to remove the provision which, at the high end, would levy a tax of 10% on the investment earnings of foundations with more than $5 billion in assets, up from the current rate of 1.39%.
The move reveals both the power of philanthropic groups, especially conservative ones, to sway legislators and a split in the administration’s coalition between those who want to protect the independence of private philanthropy and those who think the sector supports resistance to the president’s agenda.
Young said he spoke with leaders or representatives of a dozen foundations in his state to understand what it would mean to increase these taxes on foundation endowments.
Young said many in the Republican caucus appreciate the value of the investments private foundations make in their communities.
“Let’s be honest here. The target of this excise tax increase was not the vast majority of private foundations. It was a handful of large foundations that are nationally known that have been accused of embracing and perpetuating certain woke policies and agendas,” Young said.
“We should eliminate all of the special privileges that exist for our nonprofit and foundation class,” Vance said at the time. “Why is it that if you’re spending all your money to teach literal racism to our children in their schools, why do we give you special tax breaks instead of taxing you more?”
“We know policies that siphon private dollars away from charities to line the government’s coffers are antithetical to conservative values,” the signatories wrote of the proposed tax on foundation assets.
The legislation also contains a mix of provisions that impact funders, nonprofits and communities. It allows the vast majority of tax filers to take a charitable deduction of up to $1,000 for individuals and $2,000 for married couples, which advocates believe will increase the amount everyday donors give.
The law also moved forward with a new cap on itemized deductions for the wealthiest tax filers, which advocates think will deter charitable giving. It also creates a new requirement for corporations to donate a minimum of 1% of their taxable income before receiving a tax benefit. Many corporations do not meet that threshold, meaning they may be discouraged from giving at all.
United Philanthropy Forum is a membership organization of philanthropy associations, which represent foundations, and has long advocated around issues important to the sector. Besides the recent spending bill, they’ve followed executive orders, provisions that would have threatened the tax-exempt status of organizations and cuts to social safety net programs.
Matthew L. Evans, the forum’s vice president of advocacy and external relations, said the forum shifted their strategy several years ago away from solely defending the interests of the sector to advocating for the communities which private philanthropy serves.
“It really is an all hands on deck moment because again this is such an unprecedented time for us,” Evans said.
But one of the most important messages nonprofit advocates were delivering to lawmakers was around the impacts of cuts to social safety net programs, said Kyle Caldwell, who leads the Council of Michigan Foundations. He said his organization has advocated for foundations and the communities they serve in Michigan for decades.
“If you think about all of the systems that were in place: access to health care, access to education, access to food. All of those really were targeted services to the most vulnerable in our community. That’s where philanthropy invests most. That’s where nonprofits act most,” he said, adding that the cuts will “put higher demands on the nonprofit sector, which was already overburdened.”
When asked about concerns over the impact of the cuts, Senator Young from Indiana said he thinks the bill strikes the right balance.
“What we have found is that when the economy grows, people give more because they to have more to give,” Young said.
___
