Nonprofits Prepare for a Fight over Tax Policies

Amid a threatened freezing of all federal grants to nonprofits by the Trump administration, a less conspicuous but no less consequential fight is looming—over tax policies that could weaken nonprofits if not undermine their very foundations.

The most immediate of these threats is the Trump administration’s expected push to renew the $4 trillion in tax cuts that were a centerpiece of his first term.

The cuts, part of the Tax Cuts and Jobs Act (TCJA) enacted in 2017, are set to expire at the end of this year. The tax policy led to a significant drop in charitable giving by reducing the value of charitable tax deductions and increasing the standard deduction, which made people less likely to claim itemized deductions for donations.

Meanwhile, Trump has signaled support for repealing the Johnson Amendment, the legal basis for the requirement that nonprofits refrain from partisan political campaigning. Such a development could cause swaths of the nonprofit sector—including churches and other religious organizations—to get more directly involved in political campaigns, both through messaging and financial support. As a result, the nonprofit sector writ large, trusted in part for staying away from partisan politics, could suffer from diminished reputation and trust.

Trump has signaled support for repealing the Johnson Amendment.

Countering these threats will require nonprofits and their supporters to effectively make their case to elected officials and the general public, nonprofit leaders said at a recent webinar hosted by the National Council of Nonprofits.

“There’s a lot of work ahead of all of us,” said Jenn Holcomb, vice president of government affairs at the Council on Foundations. “How we do that is by telling stories, bringing in that data, and really making the connections with our local representatives about why this sector is so important. Right now, we need a strong charitable philanthropic sector to meet the needs that we have all seen in our communities.”

Tax Policy and the Impact on Charitable Giving 

The adverse impact of the Trump tax cuts on charitable giving has become clear in recent years.

“The number of households that actually give to charity has dropped dramatically over the last decade, from over two-thirds of households to about 50 percent of households,” said Steven Woolf, the tax policy consultant at the National Council of Nonprofits.

The [Trump tax cuts] led to a significant drop in charitable giving.

A recent study concluded that the tax cuts have resulted in a $20 billion decline in annual giving since they were enacted.

Republicans in Congress have already moved to extend the tax cuts. If they make the cuts part of the budget reconciliation process, as expected, the Senate could pass them with a simple majority, rather than the 60 votes needed to overcome a filibuster.

Nonprofit advocates, meanwhile, are pushing to make a “universal charitable deduction” part of the tax bill. That would allow “non-itemizers” who take the standard deduction to still write off charitable donations. The measure is among several nonprofit-friendly measures sought by the Charitable Giving Coalition.

“This expands the universe of donors, as well as providing additional incentives to those who already give so they can actually potentially give more,” Woolf said. “It increases support for the sector.”

Woolf said the measure could cost between $100 billion and $200 billion depending on how the deduction is structured. “We should argue that this would be money well spent because for every dollar of deduction, at least $1.20 goes directly to a charity fulfilling its charitable mission—a pretty good return on investment,” he said.

A more radical option being promoted by some nonprofit advocates would be to replace the charitable deduction entirely with a tax credit, a direct payment from the IRS capped on the basis of income.

Targeting the Johnson Amendment 

Nonpartisanship has long been a bedrock principle of nonprofits in the United States, codified in section 501c3 of the tax code under the Johnson Amendment. As a condition of their tax-exempt status, 501c3 nonprofits are prohibited from “participating in, or intervening in…any political campaign on behalf of (or in opposition to) any candidate for elective public office.”

In recent years, some Republicans, including Trump, have trained their sights on this provision to clear the way for churches and religious organizations to exert greater influence in the political arena.

So far nonprofit groups have been largely successful in defending the amendment.

“There’s enough money in politics as it exists right now,” said Tiffany Gourley Carter, the policy counsel for the National Council of Nonprofits. Ending the amendment, she added, “would remove trust in the sector; it would remove the core of our mission-based values.”

It remains to be seen whether Republicans will renew the effort to repeal the Johnson Amendment. A measure to repeal the policy failed in 2018 in the face of opposition from nonprofit and religious groups, which didn’t stop Trump from boasting—falsely—that he had eliminated the amendment.

“It would be the Citizens United for the nonprofit sector, quite frankly,” said Woolf, referring to the 2010 Supreme Court decision that opened the floodgates for corporate political spending.

Threats to Universities, Nonprofit Earmarks, and the Poor 

Other threats may lie ahead for nonprofits in the changed political landscape. Vice President JD Vance could renew an effort he proposed as a senator in late 2023 to increase the endowment excise tax from 1.4 percent to the corporate rate of 35 percent. The measure was seen as a way to punish elite universities, many of which have large endowments, in the wake of pro-Palestinian protests that gripped campuses in 2023 and 2024. The bill failed to clear the Senate, but with Vance and Trump in power and Congress in Republican hands, such a measure may stand better chances this time around.

Another concern is that Trump’s $4 trillion in tax cuts will come at the expense of provisions meant to help lower-income and vulnerable people, such as the earned income tax credit, childcare benefits, and health insurance subsidies.

Nonprofit groups are also wary of a measure that passed the Republican-led House in December banning all earmarks for nonprofits as a way of preventing funding going to organizations that work with LGBTQ+ people.

Navigating the Rough Road Ahead

Nonprofit leaders say meeting the threats posed by the new administration will require resolve and mobilization.

“I think it’s incumbent upon us to underscore the fact that our services are provided to people of all political parties,” said Laura Walling, the vice president of government affairs at Goodwill Industries. “The return on investment is going to benefit the country as a whole. Now is the time for us to gather the success stories, the data, all of the work that you and your members are doing on the frontlines, and for communities to raise their voices, to raise that awareness about the work that the sector provides.”

It bears noting that bipartisanship is not necessarily a lost cause when it comes to the deeply-rooted tradition of charity in America.

“Our services are provided to people of all political parties.”

A bill backed by the National Council of Nonprofits, the Charitable Act, which would restore and strengthen tax incentives for charitable giving, has bipartisan sponsors in the Senate and House.

Charitable giving incentives, said Gourley Carter, “have historically received strong bicameral, bipartisan support from across the partisan spectrum.”