'It Will Have A Chilling Effect On The Creation Of New Foundations,' The GOP Tax Bill's Effect On Billionaire Philanthropy

• President Donald Trump's "One Big Beautiful Bill" passed the House late last week
• Included in the bill are increased levies on private foundations run by the ultra-wealthy
• Experts are warning that the change will have a negative effect on charitable giving, as billionaires will shift to solutions with fewer giving mandates and more tax exemptions

President Donald Trump's "One Big Beautiful Bill"  passed the House late last week. The bill, which seeks to make permanent many of the tax cuts included in the 2017 Tax Cuts and Jobs Act, includes several additional changes, including higher levies on private foundations.

Private foundations have been the center of billionaire philanthropy for generations. From John D. Rockefeller to Bill Gates, the ultra-wealthy have long preferred to give their fortunes away through organizations they control rather than handing it out to smaller nonprofits. 

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These organizations have been largely exempt from federal income taxes, in exchange for a requirement that they spend 5% of their assets each year on charitable causes, according to Bloomberg. 

Now, experts have told the outlet that a provision in the bill could change all that.

The bill will increase the levies on private foundations' investment income from 1.39% to anywhere between 2.78% and 10%. 

Laura MacDonald, the founder of Benefactor Group, told Bloomberg the move "will have a chilling effect on the creation of new foundations and end up accelerating the growth of donor-advised funds."

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There has already been some movement away from the private foundation model toward limited liability companies and donor-advised funds, which have fewer mandates, including requirements on how much they give each year. 

Under the new proposal, it would "make no sense" for billionaires like Gates and Michael Bloomberg to put assets into their foundations when tax-free alternatives exist, FoundationMark founder John Seitz told Bloomberg. "You're taking money that's very transparent and sort of forcing it into these darker pools, where you don't have the 5% distribution requirement," he said. 

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Donor-advised funds have varying rates at which they pay out the money in their accounts to working charities. The median payout of these funds is 9% over three years, but more than one-fifth paid out no money at all over that period, according to a 2024 report from the DAF Research Collaborative. 

Meanwhile, a report from the Lilly Family School of Philanthropy found that giving by private foundations went up 1.7% in 2023– the most recent year for which data is available– to $103.53 billion. 

The Joint Committee on Taxation estimates that the change in tax rate for private foundations would raise almost $16 billion in revenue over the next decade, according to Bloomberg. However, expert Ray Madoff tells Bloomberg that they see the move more as a "challenge to independent organizations" than a legitimate economic move.

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