House Passes Legislation with Tax Increase on Private Foundations, Cuts to Safety Net Programs
Following a lengthy overnight session on the House floor, Republicans managed to pass a massive tax and spending package on Thursday morning by a single vote.
The bill contains several provisions affecting the charitable sector directly, including:
A massive increase in the private foundation excise tax: The bill would increase the private foundation excise tax on net investment income for foundations with assets under management above $50 million. Currently, all private foundations pay a simplified, flat rate of 1.39 percent. The rate would rise to 10 percent for the largest foundations. Here are the details:
The increase in the private foundation excise tax would deprive community nonprofits of resources, even as the support they receive via federal grants is on the decline and proposed cuts to safety net programs would but added strain on the sector.
Universal Charitable Deduction: The bill creates a universal charitable deduction available to all tax filers, regardless of whether they itemize their return. It would allow a $150 deduction for single filers and $300 for joint returns. While this is far smaller than the deduction proposed in the Charitable Act – which would allow a deduction up to one-third of the standard deduction – it does represent some progress on an issue important to the charitable sector.
Floor for Corporate Charitable Contributions: The bill would require that corporations contribute at least 1 percent of their taxable income to qualify for a charitable tax deduction. This proposal would reduce incentives for corporate giving. According to CECP, the median corporate grantmaker donates 0.92 percent of its pre-tax profit – under this bill, that level of giving would not be incentivized.
“Parking Lot Tax”: The bill would increase a nonprofit’s unrelated business taxable income (UBIT) for fringe benefits, including transportation or parking benefits. It carves out an exception for religious organizations.
Along with these provisions, the bill would require significant cuts in key safety net programs, putting added pressure on nonprofits – especially those concerned with health care and food insecurity. These cuts include:
- $800 billion from Medicaid over the next decade: The nonpartisan Congressional Budget Office estimates that more than 7.6 million people would lose benefits in the next 10 years. The cuts include added work requirements and a prohibition on gender-affirming care.
- $300 billion from the Supplemental Nutrition Assistance Program over 10 years: This would be achieved by adding work requirements and shifting some of the cost burdens onto states.
The legislation now heads to the Senate. While Republicans hold the majority there, it’s not clear how closely they will stick with the House’s language.
This is a great opportunity to contact your senators, especially Republicans, and let them know how the bill’s provisions, especially the increase in the private foundation excise tax, would hurt charitable giving in their states.
If you reach out to lawmakers, share with them how a tax increase on foundations would deprive community nonprofits of resources during a time of budget cuts and uncertainty around federal funding.
You can view key messages for phone calls and emails here. If you need to look up your member of Congress and their contact information, you can find that here.
We will be sharing more information soon about other ways you can take action in support of philanthropy and your communities. Keep an eye on your email and our website for more details!
