Congress should avoid a 600% tax increase on charitable foundations

Congress is currently debating many important issues as part of the “Big Beautiful Bill” (BBB). One very concerning proposal that may be flying under the radar compared to the other provisions is a section in the House version of the BBB that would impose a 600% tax increase on charitable foundations. Thankfully, this massive tax increase is not included in the Senate version.

As explained by the National Taxpayers Union Foundation:

“Federal law requires grantmaking foundations to pay out 5% of their assets each year, to pay full income tax on unrelated business income (UBI), and to pay a 1.39% federal tax on investment income. OBBBA adds some well-crafted reforms (a floor to corporate charitable contributions, and closing some loopholes on UBI) but it would convert this flat tax to a progressive one based on asset size, where larger foundations pay a higher tax rate up to 10%. This tax increase will have unintended consequences, sweeping thousands of community and faith-based foundations into its scope. Large and bad are not the same thing (particularly when it comes to charitable endeavors). The Senate should avoid setting a precedent for wealth taxes and remove this tax increase.”

Idaho State Senator Julie VanOrden recently wrote an op-ed warning of the possible consequences of this tax increase on the Gem State. She said:

“Idaho’s broader charitable ecosystem is equally essential. The Idaho Community Foundation has distributed more than $177 million in grants across all 44 counties. This year’s Idaho Gives campaign alone raised over $5 million for local nonprofits. These organizations thrive not because they have to, but because they choose to give. They are on a mission to serve our communities and the most vulnerable among us. Taxing that generosity is not only shortsighted; it’s self-defeating.”

Mountain States Policy Center agrees that this tax increase is the wrong approach. That is why we joined a coalition letter on June 23 to House leadership, encouraging them to remove this massive tax increase on charitable foundations from the BBB as the Senate wisely did. That coalition letter says (in part):

"The draft Senate bill rightly eliminates the private foundation tax increases included in the House version of the One Big Beautiful Bill Act (OBBA). The House-passed bill would raise taxes on charities by more than 600%, allowing the IRS to take nearly $16 billion from private charitable foundations that would otherwise help improve the lives of many Americans. Countless programs and services that provide for the needs of people in every state are funded by the generosity of private citizens. Without them, we would see more Americans reliant on government, which ultimately costs us all more for what is often an inefficient bureaucratic solution."

The letter continues:

"Charitable giving helps form the bedrock of a resilient America by supporting organizations committed to creating a stronger, healthier society where every person has the opportunity to thrive. We support our nation’s long history of encouraging private initiative and generosity that benefits the common good, and we will work to advance conservative and free market policies that continue this legacy."

Congressional leaders plan to vote on the final version of the BBB before the 4th of July. There is nothing beautiful about imposing a big 600% tax increase on charitable foundations. Let’s hope we’re also celebrating the defeat of this misguided tax increase when the fireworks go off on Independence Day.