Bipartisan support helps foundations avoid tax increase in new Trump 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.
Backing of Republican senators and conservative groups was key
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.
Though Young didn't name any specific leaders, Indiana is home to numerous major foundations — including one of America's largest foundations, the Lilly Endowment, which holds shares in the pharmaceutical company Eli Lilly and reported assets of almost $80 billion at the end of last year. The Associated Press receives funding from the Lilly Endowment for its coverage of philanthropy and religion.
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.
While he didn't specify the specific foundations, Young was tapping into a critique of large progressive foundations brought by politicians like Vice President JD Vance. In a 2021 speech at the conservative think tank The Claremont Institute, Vance attacked foundations who fund movements for social justice and characterized their support for Black Lives Matter groups as 'investing in racial division.'
'We should eliminate all of the special privileges that exist for our nonprofit foundation class,' Vance said at the time. 'If you're spending all your money to teach racism to our children in their schools, why do we give you special tax breaks instead of taxing you more?'
The White House has generally expressed support for that policy view. In an early executive order, Trump asked the attorney general to identify large foundations to investigate for civil rights violations, along with large corporations and universities. So far, the administration has not announced any investigations into foundations, even as the deadline included in the executive order has passed.
Conservative philanthropic groups added their voice to oppose the proposed increase in taxes on foundations' endowment earnings. The Philanthropy Roundtable, which said it supports conservative and free market ideas, led a coalition to send a letter to Senate majority leader Sen. John Thune of Montana and Sen. Mike Crapo of Idaho, who leads the Senate Finance Committee.
'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.
Other provisions include a charitable deduction but also new limits on company giving
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 for foundations, which 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 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.
The forum was part of a coalition of nonprofit associations that helped organize a letter pushing back on multiple provisions in the spending bill, which almost 3,000 nonprofits signed on to support.
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.
___
Associated Press coverage of philanthropy and nonprofits receives support through the AP's collaboration with The Conversation US, with funding from Lilly Endowment Inc. The AP is solely responsible for this content. For all of AP's philanthropy coverage, visit https://apnews.com/hub/philanthropy.
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