During his 2021 Senate campaign, JD Vance, now elected as vice president, did not shy away from harshly criticizing two of the nation’s largest private philanthropic organizations: the Ford Foundation and the Gates Foundation.
He argued that these entities, while masquerading as charitable institutions, actually serve as “cancers on American society,” benefiting from preferential tax treatment despite their vast wealth. Vance contended that their endowments, which amount to hundreds of billions, fund “radical left-wing ideology” and called for the government to seize their assets.
While Vance’s rhetoric may have been extreme, he was correct in identifying several major foundations, including Ford, MacArthur, and Soros, as having a left-leaning agenda. Although his call to seize their assets is unlikely to gain political or legal traction, it’s worth considering the tax privileges these foundations enjoy.
JD Vance, during his 2021 Senate campaign, criticized major philanthropic organizations like the Ford and Gates Foundations
These advantages have allowed such foundations to amass considerable wealth, even as charitable donations from individuals—a key pillar of American civil society—have been on the decline. In fact, charitable giving, when adjusted for inflation and as a percentage of income, continues to shrink, especially as we approach the year’s end.
As Congress debates the future of the 2017 Tax Cuts and Jobs Act under President-elect Trump, lawmakers should prioritize creating tax incentives for those who don’t itemize their returns, giving middle- and low-income Americans an opportunity to donate more to charity.
To offset potential revenue losses, Congress could consider raising the minimal excise tax on foundation asset appreciation, which currently sits at a relatively low 1.39 percent. This rate is below the 4 percent set by the Tax Reform Act of 1969.
The current low tax rate on foundation assets has contributed to their exponential growth, especially when compared to the standard 15 percent capital gains tax. According to data from FoundationMark, U.S. foundation assets reached a new high of $1.5 trillion in 2023, having grown by nearly $200 billion in that year alone.
Over the past five years, the combination of favorable investment returns and substantial contributions has fueled this growth, with the latter benefiting from tax deductions of up to 30 percent of income.
Since foundations are required to allocate at least 5 percent of their assets toward grants, their expansion means that foundation-driven giving is becoming a larger portion of all U.S. charitable donations. Over the past decade, foundation giving has increased from 16 to 18 percent of all IRS-tracked charitable contributions, while individual donations have decreased from 71 percent to 67 percent.
This shift is not a trivial development, as foundation donations are typically controlled by wealthy individuals or staff with specific agendas, such as Ford’s focus on reducing income inequality or the Hewlett Foundation’s emphasis on climate change.
Individual giving tends to support a wider range of causes, often focused on local initiatives like churches or historical societies, helping to foster social cohesion. Despite the high-profile issues tackled by large foundations, such as climate change, racial justice, and criminal justice reform, studies like Giving USA highlight that donors, on the whole, prefer contributing to religious and human services over environmental and public benefit causes.
The tax code, however, offers little incentive for small-dollar donors. While the Tax Cuts and Jobs Act of 2017 introduced many beneficial changes, it sharply increased the standard deduction, which reduced the number of taxpayers who itemize their returns.
As a result, most Americans, except for the wealthiest, no longer have the incentive to claim deductions for charitable contributions. This has made charitable giving, from a tax perspective, a luxury largely reserved for high earners.
As the Congressional Joint Economic Committee pointed out, in 2018, only 9 percent of charitable giving benefiting from tax deductions came from the bottom 80 percent of earners, while over half of the deductions went to the top 1 percent.
A potential remedy would be to implement an “above-the-line” deduction for those who don’t itemize, allowing them to reduce taxable income through charitable donations. This provision, which briefly existed under the COVID-era CARES Act, allowed a $300 deduction per taxpayer, offering a model for expanding tax benefits for charitable giving.
While it’s unclear if such a change would boost actual donations, there’s a clear equity argument in favor of offering charitable tax benefits to middle- and low-income taxpayers. The major obstacle in Congress is not whether this will increase charitable donations, but the anticipated loss in tax revenue. The CARES Act’s temporary incentive was estimated to have cost the IRS $4.8 billion in lost revenue, prompting lawmakers to seek ways to recoup this loss.
To make up for such losses, Congress should consider increasing the excise tax on foundation asset growth. If the excise tax were raised from 1.39 percent to the capital gains tax rate of 20 percent, it could potentially increase revenue by $13 billion, a step toward offsetting any revenue loss from expanded charitable deductions.
Even applying this higher tax rate to only the largest foundations—those with assets over $1 billion—would provide a substantial contribution to funding these tax incentives. Raising the excise tax on large foundations would have the added benefit of curbing their unchecked growth.
Foundations have increasingly become vehicles for self-perpetuating boards and staff with their own agendas, rather than serving as outlets for the philanthropic intentions of wealthy individuals. A higher excise tax could help redirect more giving to individuals, encouraging the gradual closure of large foundations—such as the Gates Foundation, which has pledged to wind down by 2047—thus serving as a model for the sector.
The current tax structure unduly favors wealthy, institutional donors over smaller, individual contributors. It’s time to shift the balance and create a tax system that fosters greater individual giving while also placing more responsibility on large foundations.
