‘Money grab': Why Wall Street donors are sweating the tax bill
Wall Street philanthropists — including some major supporters of the GOP — are about to get hit with a big tax bill if House Republicans get their way.
Large charitable foundations overseen by industry heavyweights like Blackstone Group's Steve Schwarzman and Citadel's Ken Griffin could soon see their tax rates double or even triple under the 'big, beautiful bill' that House leaders are pushing to the floor. Industry representatives and nonprofit groups say the looming tax hike on private foundations represents a threat to private philanthropic efforts that they say Republicans should be elevating, rather than punishing.
'The foundation world fills many gaps,' Kathy Wylde, the president and CEO for the Partnership for New York City, a nonprofit organization that represents the city's top business leaders. 'To discourage investment is counterproductive to the president's goals of getting some of these functions into the private sector and out of government.'
The plan to raise tax revenue from philanthropic organizations established by top financiers underscores the ascendance of Republican lawmakers who are wary of Wall Street's long-held influence over party leadership. While the overall bill is projected to benefit top earners, its targeting of private foundations — along with provisions that raise taxes on college endowments and establish new levies affecting nonprofits — reflects populist frustrations with tax-exempt entities that are perceived as having boosted progressive causes.
But zeroing in on those organizations — which include family-run nonprofits that are used to fund hospitals, religious organizations and charter schools — also risks frustrating the party's traditional allies within the industry.
Leon Cooperman, the billionaire investor and philanthropist, said the GOP's budget bill misses the mark, and that he expects the tax hit on private foundations to dent philanthropic efforts. Cooperman, a longtime Republican donor, established a tax-exempt family foundation in 1982 that has contributed hundreds of millions to charities, hospitals and educational institutions.
'The government continues its policy of tax and spend rather than focus on expense reduction. We don't have a revenue problem but rather an expense problem,' he said in an email, later adding that the tax hit on large private foundations 'won't effect [sic] me but I think [it will] adversely effect [sic] giving.'
The bill — written to deliver on President Donald Trump's tax, border and energy priorities — would charge private foundations higher excise taxes on investment income based on their size. Institutions with between $50 million and $250 million of assets would be charged 2.8 percent, those with more than $250 million would be charged 5 percent, and those with $5 billion or more would be charged 10 percent. The tax rate on smaller institutions' investment gains would remain unchanged at 1.4 percent.
The overall cost of the Republican legislation is likely to be enormous. Estimates from the Yale Budget Lab and Penn Wharton Budget Model project that the current framework would add $3.4 trillion to the debt over the next decade, and holding onto any new revenue sources has been a priority for Republican leaders looking to fend off a revolt from deficit hawks. The Joint Committee on Taxation estimates that the new foundation taxes would raise close to $16 billion over the next decade.
Members of both parties have been skeptical of the influence wielded by major private foundations and how they might be used or fund political efforts. Private philanthropies launched by the Clinton and Trump families have long been treated as political punching bags — Trump's foundation was eventually dissolved by New York authorities — and populist lawmakers have frequently made mincemeat of tax-exempt groups that they say improperly padded their coffers.
Still, the House GOP's push to raise billions through new taxes on foundations has chilled leaders of groups who helped steer the wealthy's philanthropic efforts into endeavors that are traditionally aligned with the right.
'They're looking at the elites versus the non-elites. There's a lot of money in foundations who would be defined as the elite, and therefore they like to see that money go elsewhere,' said Lawson Bader, the president and CEO of DonorsTrust, a donor-advised fund and 501(c)(3) that's a powerful force in Republican fundraising circles. This 'seems to be really nothing more than a money grab that is — I think — tinged with some political DNA that has me uncomfortable.'
Nevertheless, the private foundation tax is broadly expected to be included in the House bill upon passage. Two tax lobbyists, who were granted anonymity to discuss the negotiations around the bill, said they expect larger foundations to step up their outreach on Capitol Hill in the coming weeks to try to deter Senate Republicans from including the provision in their bill.
Washington advocacy organizations representing nonprofits, including the Philanthropy Roundtable and Council on Foundations, have been pushing back publicly on the new levies.
While the tax hike takes the biggest swing at large foundations — think major philanthropies like the Gates Foundation or George Soros' Open Society Foundations — nonprofit advocates are warning that smaller foundations may be forced to curtail grants or gift giving to prepare for a steeper tax bill.
'They see the ripple,' said Jenn Holcomb, the vice president of government affairs and legal resources at the Council on Foundations. 'They know this is going to have a broader impact beyond just private foundations.'
Ridgway White, the president and CEO of the Charles Stewart Mott Foundation, said his Flint, Michigan-based foundation may have to cut back support for local organizations if its investment income is taxed at much higher rates.
'The unfortunate thing is that the dollars being taxed aren't going to come back to communities like Flint,' said White, whose 99-year-old organization had roughly $3.7 billion of assets as of 2023. 'That would mean that there's less programs for after school, less money to support maintenance of parks — it's across the board — less money going into our cultural center, institutions, Catholic Charities, food bank, warming centers, food pantries. Across the board.'
'The Mott Foundation has, over time — if you account for inflation — granted $9 billion to our local community and communities across the world,' he added. 'I would argue that that benefit far exceeds any kind of tax benefit that was received by C.S. Mott in 1926.'
CORRECTION: Correction: A previous version of this story misstated the origins of the Partnership for New York City.
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Politico
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