Trump Bill divide: Conservatives split on taxing private foundations
The battle over tax provisions in Trump’s “Big Beautiful Bill” has split conservatives on whether increasing taxes on private foundations is in the public interest.
The final reconciliation package passed by the House on July 3rd adopted the Senate position, and did not include any changes to the private foundation excise tax, a victory for large foundations.
Earlier in the process, as reported in the Washington Times, the conservative Philanthropy Roundtable – which often disagrees with mainstream foundation groups – has unexpectedly shown up in sync with the Council of Foundations and other "philanthropy support organizations" (PSOs).
The Washington Times reports that the Roundtable sent a letter to Senate leaders saying that the proposed increased tax on foundation assets "contradicts" conservative goals and the goal shared with the Trump administration of reducing government.
According to the conservative paper, “Tax writers on the House Ways and Means Committee said the tax increase was designed not just as a revenue raiser to offset other tax cuts in the bill, but also to encourage foundations to spend more of their money.”
At the same time, Oklahoma Republican Congressman Kevin Hern supported the increase in taxes on foundations. Echoing themes from the Philanthropy Project, Hern argued , “If you’re going to hold onto the money, why shouldn’t you be taxed like other companies that make money? “I’m sure there are people that don’t like it, but our deal is: Deploy the money.”
Another advocate for increased foundation giving is Arizona Republican Congressman David Schweikert: “If it’s a charitable foundation, maybe the money should be being spent on charitable [causes] instead of the foundation acting like a hedge fund . . . They’re participating in the markets like they’re a hedge fund since they don’t have the tax exposure.”
While some House members see low foundation activity as a problem, their version provides little incentive to increase payout, and leaves transfers to DAFs an easy workaround.
When it comes to philanthropic reform, neither Republicans nor Democrats have lined up along party lines, nor along conventional conservative/liberal lines. For the most part Congress has shown little interest in changing current arrangements for regulation of philanthropy, perhaps until now. Regrettably the changes in this bill make no sense. Our tag line for the Philanthropy Project – Charitable funds should benefit the public – should be something that unites people across these divides, but this legislation does none of that.
How the Big Beautiful Bill Could Shrink Foundations and Increase DAFs
Philanthropy Project is experimenting with shorter, one-topic emails rather than our usual newsletter with several articles.
A relatively unnoticed provision in the House version of Trump's colossal bill is a tax change that is supposed to increase tax revenues by almost $16 billion, in part to offset the big tax breaks for the wealthiest Americans.
This new tax? A tax on private foundation assets (a wealth tax of a sort).
- Foundations with less than $50 million in assets: no increases; tax remains at current 1.39%
- Foundations with assets between $50 million and $250 million: raise to $2.78%
- Foundations with assets between $250 million and $5 billion: raise to 5%
- Foundations with assets above $5 billion: raise to 10%
But there's a giant available loophole in the House version right in front of us.
A private foundation can transfer a large chunk of its assets to an account at a donor-advised fund sponsor, while effectively still controlling how the assets are invested, what grants are made, their purposes, and how much money (or how little) is put into active charitable use. For example, if a foundation moves $20 million into a DAF, they would pay $0 in taxes on that $20 million. And the foundation's asset size would shrink to a lower tax bracket.
And as an extra enticement, the foundation would have no payout requirement on those funds, and no longer have to publicly disclose what grants, beneficiaries or amounts it made through its donor-advised fund.
Industry publication Chief Investment Officer predicts exactly that. In other words, if the bill passes the Senate, the tax increase won't bring in the promised revenue, and it will likely move billions of foundation dollars into donor-advised funds where they are even more hidden than where they are now.
While the Senate left out the increased tax in its version, the final result is unknown, and could fall somewhere in between.
We know that some foundations already make only one grant per year – to their donor-advised fund. The Big Beautiful bill calls it "raising tax revenue" but in this one area at least it looks more like an incentive to hide money.
The Philanthropy Project believes that charitable funds should benefit the public. Join the movement/subscribe here. Email us info@philanthropyproject.net. We want to hear the good, bad, and the ugly from you. — Jan Masaoka and Jon Pratt, Co-Chairs, Philanthropy Project