A provision in the House version of the One Big Beautiful Bill Act (OBBBA) would impose a progressive tax structure on private foundations, inhibiting the efforts of private charities that dedicate hundreds of billions of dollars per year to worthy causes, according to an NTUF report released Friday.
While not included in the Senate version of the OBBBA, the tax increases on foundations could reduce charitable investment in public services, resulting in increased reliance on government subsidies, infrastructure, and welfare programs. Furthermore, the structure of the tax could set counterproductive policy precedents for future taxpayers outside the nonprofit sector.
“The actions of a few prominent nonprofits should not lead to a presumption that the entire community of nonprofits is guilty of bad behavior,” said Debbie Jennings, NTUF’s Policy Manager and coauthor of the report. “This could end up harming many other religious and community-based foundations that do much of the work government cannot do.”
“Americans are some of the most generous givers in the world, and it would be a shame to undermine that for a relatively modest amount of additional tax revenue,” said Tyler Martinez, NTUF’s Senior Attorney and coauthor of the report.
Under the proposal, the tax rate would remain 1.39% for foundations with below $50 million in assets, double to 2.78% for those with between $50 million and $250 million in assets, more than triple to 5% for foundations with assets between $250 million and $5 billion, and climb dramatically to 10% for foundations with above $5 billion in assets.
The Joint Committee on Taxation estimates that the foundation tax proposal will raise about $16 billion in revenue over the next ten years. Private foundations gave six times that amount in 2023 alone.
Private foundations exist under a robust legal framework with distribution requirements, a ban on political activities, and requirements to have a board of directors and transparency in finances and operations.
Jennings said Congress should consider targeted reforms or technical fixes that both protect and bolster trust in private foundations without imposing a punitive and progressive new tax.
“Targeted reforms that strengthen the integrity of the charitable sector will better protect incentives to give. It is in the best interest of taxpayers and those most in need for policymakers to avoid adding progressive tax rates on foundations based on their asset size,” Jennings said.
Read the full report.