Foundation Tax Hike Sparks National Outcry in US
The debate over a proposed steep increase in the federal excise tax on private foundations has become one of the most contentious issues in the U.S. nonprofit sector in 2025, with potentially profound implications for charitable giving, civil society, and the relationship between government and philanthropy. As Congress moves to reconcile sharply different House and Senate versions of the “One Big Beautiful Bill,” the future of private foundation taxation—and the billions of dollars in grants they provide to communities—hangs in the balance.
The controversy began in May, when the House of Representatives narrowly passed the “One Big Beautiful Bill Act,” a comprehensive tax and spending package that included a dramatic overhaul of the excise tax system for private foundations. Since 2020, private foundations have paid a flat 1.39% excise tax on their net investment income. The House bill would replace this with a sharply graduated structure, imposing a 2.78% rate on foundations with assets above $50 million, 5% on those above $250 million, and a top rate of 10% for foundations with assets exceeding $5 billion. This would represent a tax increase of up to 619% for the largest foundations, according to estimates from the Council on Foundations and the Joint Committee on Taxation, which projects the measure would raise nearly $16 billion over the next decade1234.
The rationale from House tax writers is twofold: to generate new federal revenue and to encourage foundations to distribute more of their assets to charitable causes, rather than accumulating wealth in perpetuity. Proponents argue that some of the nation’s largest foundations operate more like investment funds than charitable organizations, and that a higher tax rate would pressure them to increase their annual payouts4. Representatives Kevin Hern and David Schweikert, among others, have publicly defended the measure as a way to ensure foundations “holding onto money” face taxation similar to for-profit companies4.
However, the proposal has triggered a fierce backlash from across the philanthropic and nonprofit communities. Organizations such as the Philanthropy Roundtable, Council on Foundations, United Philanthropy Forum, and numerous community foundations have warned that the tax hike would directly reduce the funds available for grants, undermining the ability of foundations to support food banks, disaster relief, educational scholarships, health clinics, and other vital services2567. In a letter to Senate leaders, a coalition of free-market and conservative groups argued that the measure contradicts conservative principles and the Trump administration’s stated goal of reducing government size, calling it “an enormous transfer of private resources to fund big government spending”27.
Sector leaders emphasize that every dollar paid in increased taxes is a dollar not going to charitable work, and warn that the measure would disproportionately harm the most vulnerable communities. The Council on Foundations’ president, Kathleen Enright, stated that “aggressively taxing charitable foundations doesn’t just restrict today’s giving—it also reduces the resources available to support local organizations through future crises”5. The Philanthropy Roundtable has described the proposal as a “penalty on generosity” that threatens the American tradition of voluntary, community-driven solutions7.
Analysts caution that the effects of the tax hike would not be felt immediately, as many foundations have multi-year grant commitments and may initially draw down their endowments to fulfill existing obligations8. However, over the medium and long term, the increased tax burden is expected to force boards to reduce payouts, leading to a projected decrease in foundation distributions to nonprofits by as much as 3% to 15%—and potentially far more if foundations move to a strict 5% payout model to offset the higher tax8. This could translate into billions of dollars less for nonprofit organizations and the communities they serve.
The Senate’s response to these concerns was swift and significant. On June 16, the Senate Finance Committee released its own version of the “One Big Beautiful Bill,” which notably stripped out the House-passed excise tax increase on private foundations924. The Senate bill also removed related provisions, such as adjustments to fringe benefits and excess business holdings, though it retained an expansion of the tax on excess compensation within tax-exempt organizations9. This move was welcomed by philanthropic groups, who “breathed a sigh of relief” but remained wary that the tax hike could be reintroduced during the reconciliation process between the two chambers924.
Despite the Senate’s removal of the provision, the final outcome remains uncertain. The legislative process requires the House and Senate to reconcile their respective bills and approve a unified version before it is sent to the President for signature. With President Trump and House leaders continuing to advocate for the House’s priorities, including the foundation tax hike, philanthropic organizations are maintaining intense advocacy efforts, urging lawmakers to reject the measure and protect the resources that foundations use to support communities in need247.
The stakes are high, not only for the nearly 2,900 private foundations directly affected by the proposed tax but also for the more than 1.5 million nonprofits and countless individuals who rely on their support27. Community foundations have joined the opposition, highlighting the critical partnerships between local and private foundations in addressing urgent needs and warning that the tax increase would “deprive communities of critical resources at a time when needs are rising”6.
As the July 4 deadline for Senate passage approaches, and with negotiations likely to intensify in the coming weeks, the philanthropic sector faces a period of profound uncertainty. The outcome will determine whether private foundations continue to operate under the current tax regime or face a new fiscal landscape that could reshape the future of American charitable giving. For now, the message from the nation’s leading philanthropic and nonprofit organizations is clear: Congress should protect, not penalize, the institutions that fuel opportunity, resilience, and innovation in communities across the country. The coming weeks will reveal whether lawmakers heed that call or proceed with a measure that could fundamentally alter the role of private philanthropy in American society.
Nonprofits on Alert: Foundation Tax Hike Looms
The House’s version of the "One Big Beautiful Bill" proposes a massive increase in the excise tax on private foundations—up to 10% for the largest. While supporters argue it will push more charitable giving, nonprofit leaders warn it could slash billions from vital community programs.
With Senate opposition mounting and a July 4 deadline approaching, the future of philanthropy in the U.S. hangs in the balance.
Read more about what’s at stake.
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