The House Ways and Means Committee budget bill being marked up today has a number of items regarding the tax-exempt sector. In general, they are a wipeout for the sector and those refusing to consider much-needed reform of it.
In its current form, the bill not only vastly increases the endowment tax on large university endowments, it also includes a significant new increase in the excise tax on private-foundation endowments—up to 10% for the largest foundations. These provisions raise approximately $21 billion dollars—revenue the Committee desperately needs to offset other costs of the bill.
Further, the bill significantly expands the application of tax on excess compensation within tax-exempt organizations—now covering all employees paid more than $1 million. In addition, a marked tightening of UBIT rules will translate into billions of additional taxes on the exempt sector. Also of note, there’s now a one-percent percent floor on the deductions of charitable contributions made by corporations (a surprisingly big money-raiser).
Instead of addressing reforms of the nonprofit sector—in the areas of donor-advised funds and private foundations—to get more money into the hands of working charities, leaders of the sector spent all their time and energy looking to get the above-the-line deduction for charities back in place. They got a damp squib for their effort—a temporary deduction through 2028 of $150 for singles and $300 for couples filing jointly. There is no making this pretty: all the energy, drive, and focus of the sector essentially went to waste.
Another note worth making is that for advocates of greater school choice (and most important, children stuck in failing schools), there was a huge success—a tax-credit (!) deduction for charitable contributions to exempt organizations providing scholarships to low-income elementary- and secondary-school students. This scores as a $20 billion dollar provision and is through 2029.
I expect little to no relief in the Senate from the Ways and Means bill, with the Senate looking harder at specific areas of the tax-exempt sector, especially universities. How many more wake-up calls does the nonprofit sector need before it changes the playbook?
This article first appeared in the Giving Review on May 13, 2025.
