Tax Legislation Could Move Quickly, Pose Challenges for Philanthropy Following a GOP Sweep

Republicans secured control of both chambers of Congress and the White House in November’s elections, giving the party unified control over the legislative and executive branches for the first time in several years. This upcoming shift of power in Washington means that tax legislation could come together quickly in 2025 and threaten the philanthropic sector with increased taxation.

Work on Tax Reform Legislation is Already Underway

Having won control of Congress, Republican lawmakers have already begun preparing to use a fast-track process to advance tax legislation next year. This process allows Congress to enact tax and spending legislation via a simple majority, bypassing the Senate’s filibuster rules. While GOP Leadership initially indicated they’d like to pass a tax bill within the first 100 days of Trump taking office, disagreement within the party on timelines and policies to include will extend that timeline.  After Congress addresses the final must-pass items on its agenda, like government spending and national security legislation, we expect Republicans will use the preparatory work done by the House’s tax teams and Senate’s informal working groups to hit the ground running on tax legislation early in 2025. 

Philanthropy Southwest submitted comments (attached) to the House’s Tax Teams in October that highlight the positive impacts of philanthropy across the Southwest, advocate for policies that incentivize charitable giving, and call to protect foundations’ ability to serve their communities. These comments can inform tax policy discussions beyond 2025 and were also shared broadly with Democrats and Republicans in the House and Senate. 

A Republican Trifecta Poses Challenges for Philanthropy

Extending the $4.6 trillion worth of Tax Cuts and Jobs Act (TCJA) provisions that will expire next year without offsetting some of the cost will be difficult for many GOP deficit hawks to stomach. Some Republicans have even suggested going further than simply extending TCJA, which could further drive up the cost. Lawmakers will look for spending cuts or tax increases in an attempt to cancel out at least some of these costs, and as the GOP has become increasingly populist and skeptical of institutions like philanthropy, tapping the nonprofit sector for revenue could very well be on the table. You may recall that the last time Republicans passed tax legislation using budget reconciliation in 2017, they created a new tax on large university endowments, as well as a tax on benefits nonprofits provide, the latter of which had to be repealed soon after. Efforts like these, and new ones, could be revived and broadened in the hunt for revenue. At the same time, key Republicans have openly questioned whether nonprofits should remain tax-exempt if they resemble or compete with for-profits and whether nonprofit hospitals and universities are living up to the community benefit standards that justify their nonprofit status. Ultimately, this all means philanthropy using its voice to educate policy decision-makers will be critical next year. 

The Southwest’s Seat at the Table

Philanthropy in the Southwest is uniquely positioned to inform policy discussions around tax and the charitable sector next year through members of congress in the region. Taxwriting Sen. James Lankford (R-OK), who is among the sector’s greatest GOP champions, has repeatedly indicated that enacting a charitable deduction available to non-itemizers will be among his top tax priorities in 2025. Meanwhile, Ways and Means member Rep. Jodey Arrington (R-TX) also chairs the House’s Budget Committee, which kicks off the reconciliation process, positioning Arrington to have heavy influence over 2025 tax reform.  Taxwriting Sen. John Cornyn and Reps. Kevin Hern (R-OK), David Schweikert (R-AZ), Beth Van Duyne (R-TX), and Blake Moore (R-UT) will all be in the majority next year as well. The Democratic taxwriters in PSW’s footprint – Sens. Catherine Cortez Masto (D-NV) and Michael Bennet (D-CO) and Reps. Lloyd Doggett (D-TX) and Steven Horsford (D-NV) – will be less influential in the partisan tax reform process but may nevertheless be able to support the sector during hearings and bill markups. Stay tuned.

House Passes Contentious Terrorism Bill

Late last month, the House narrowly passed legislation (H.R. 9495) that would, in part, allow the Treasury Department to revoke the tax-exempt status of an organization deemed to be providing material support to a terrorist organization. The bill, which drew opposition from certain charitable sector advocates, advanced with minimal Democratic support. The Democrat- controlled Senate is unlikely to consider the measure in the limited days remaining this year, but this could be legislation Republicans pursue again next Congress. 

Several Recently Released Reports Could Help Inform Policy Discussions Next Year

Donor Declines Continue: The Lilly Family School of Philanthropy at Indiana University recently published a report on pandemic giving that showed that from 2018 to 2020, the share of households that gave to charity declined by about 8 percent. This decline continues a longstanding trend of decreased donor participation, with the number of households giving falling from around two-thirds in 2000 to under half in 2020. 

DAF Giving Remains Strong: The National Philanthropic Trust’s 2024 Donor-Advised Fund Report found that DAFs granted out $54.77 billion in 2023, down slightly from a record high of $55.53 million in 2022. The average DAF payout rate was 23.9 percent, down from 24.1 percent in 2022.  

Dollars Up & Donors Down to Start 2024: The Association of Fundraising Professionals’ Fundraising Effectiveness Project’s Q2 report found there was a 3.7 percent increase in dollars donated compared to the first two quarters of last year but the number of donors decreased by 3.9 percent.  Misconceptions on Sector Growth: The Philanthropy Roundtable published a report on how the philanthropic sector has grown and evolved from 2000 to 2023 that addresses several misconceptions about the sector’s growth, including the misbelief that the sector has become increasingly involved in political activities.

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