After Avoiding New Taxes, Here’s How Philanthropy Can Prepare for the Right’s Next Attacks

On July 4th, President Trump signed the One Big Beautiful Bill Act, and many foundation leaders sighed in relief. The original legislation from the House contained substantial increased excise taxes on the largest funders. In the end, the Senate removed these assessments after a concerted lobbying effort.

For many, this legislative victory will be seen as proof that foundations are still privileged when it comes to legislative action. The governing legal framework for foundations has essentially remained unchanged since the Tax Reform Act of 1969, and the sector has successfully rebuffed most attempts to change it.

Nonetheless, antagonism towards Big Philanthropy is strong on the right. Vice President JD Vance, Senator Josh Hawley of Missouri and others oppose the perceived partisanship of the largest foundations and their role in funding causes that are anathema to conservatives.

For populists on the right, these philanthropies are perceived as bastions of left-wing ideology where those at the top draw million-dollar salaries. For more mainstream conservatives, the issue comes down to one question: What have you done for my state and my constituency lately? With a few exceptions, such as the Lilly Endowment and the Kellogg Foundation, few can offer a strong case for how their work aligns with the needs of red states.

The Right’s Gameplan

While the anti-Big Philanthropy forces on the right may have lost this round, they aren’t about to give up. Republican strategists will become smarter in their reform efforts and will develop proposals that are more likely to stick. They may try to stop foundations and 501(c)(3) groups from engaging in politics and lobbying by imposing new limits on activities such as voter registration — activities that most Americans don’t associate with charity. They might address not just the high salaries paid to foundation and nonprofit executives, but the ability of grant makers to count these expenditures towards their legally mandated payout requirement.

They could also take on the abuse of donor-advised funds by some foundations that want to mask their grants or, even worse, use DAF contributions to meet their distribution requirements instead of funding nonprofits. Finally, they may try to make cause with advocates on the left by demanding that foundations increase their annual payouts from 5 percent to 10 percent.

The net effect of these steps would significantly constrain foundations and push them towards grant making that is more in line with the public’s notion of the common good. The size and power of the biggest philanthropies would also shrink as they are required to give away more money with fewer deductions.

The Best Response

If this scenario is plausible, how will the foundation sector respond?

One approach might be to fight back and engage in open political warfare with conservatives. The MacArthur Foundation, for example, is leading a group of donors and nonprofits in resisting the Trump administration’s policies.

But I’m skeptical that direct confrontation will work. Foundation critics aren’t going away, and engaging in open opposition will only make them more determined and convinced that they’re right.

Fear of decreased grant making because of increased taxes on foundations drove many nonprofits to oppose the House bill. That argument would disappear if the distribution requirement was increased. Nonprofit advocates might even accept new restrictions on political activities if it meant increased funding to charities.

A second approach is to continue business as usual and promote the essential nature of foundations and their grantees. The Philanthropy Roundtable, Council on Foundations, and Independent Sector seem to be on this path, although the latter two have been sharply critical of the tax bill generally. Their common message is that foundations serve many basic local needs and that any further regulation or taxes will diminish that capacity.

That strategy worked this time. Many nonprofits were convinced that the proposal to increase the excise tax on foundations with assets greater than $50 million would directly impact them — even though very few of the largest philanthropies invest significantly in small and mid-sized organizations. But will this approach work if the proposal is not to increase taxes but to increase the payout requirement to 10 percent or more?

A third approach would require recognizing that foundations operate in, not above, politics and that their messaging, staffing, and grant making have political consequences. What would this strategy entail?

For starters, it couldn’t be purely cosmetic. I’m aware of at least one major foundation that has a search underway for a Republican board member. While the intent may be sincere, most candidates will turn down such opportunities out of fear that being associated with a liberal funder could hurt their opportunities for appointments in future Republican administrations. Similarly, hiring a few token conservatives as program officers will have little impact given the overwhelming liberal tilt of most foundation staffs.

Instead, philanthropies will need to conduct an honest reassessment of their core grant making. This does not mean that the Ford Foundation needs to start funding the Heritage Foundation or one of the other conservative think tanks. Nor does it mean that funders will need to follow in the Chan Zuckerberg Initiative’s footsteps and retreat to the safest possible giving approach.

Foundations can, however, take some simple steps to make themselves less provocative to conservatives. That includes looking closely at grants that involve advocacy, lobbying, and election-adjacent projects. Chan Zuckerberg’s decision to stop funding election-related activities was prompted by criticism from conservatives. Grant makers that support voter registration efforts or policy work in areas such as climate change, immigration, or transgender rights can expect to face political ramifications.

Alternatively, they might consider switching a significant portion of giving to areas with strong bipartisan interest. One example is literacy, a serious and growing problem in the United States that affects not only an individual’s job prospects, but also the health of our democracy. A nationwide or regional initiative to improve reading would be both valuable and above the political fray.

Foundations should also explore more ways of working with the states. Bloomberg Philanthropies and others have invested millions in helping cities address problems. But far fewer donors have made the same commitment to helping states address financial, infrastructure, and other challenges.

Finally, instead of just playing defense, foundations, through their trade associations, should put forward serious ideas for reforming the sector. Preventing foundations from making grants to DAFs, for instance, would be well-received, as would broad reforms aimed at ending the use of DAFs for stockpiling charitable money.

Grant makers could also take the even bigger step of proactively promoting increased payout requirements and limits on the use of foundation expenses to meet them. After years of high returns and growing endowments, clinging to the 5 percent payout seems unwise.

At a minimum, these steps would reduce conservative rancor towards the sector and buy goodwill from liberal advocates for a more responsible donor community. I’m not confident foundations are ready to play politics, but I’m certain that politicians won’t let them off the hook so easily the next time.