Ramstad: Beyond cuts to government aid, Trump’s big bill in Congress would harm charities

President Donald Trump’s Big Beautiful Bill, facing its make-or-break moment right now in the Senate, may lift economic growth. First, it will hurt people.

The best thing that can be said about the bill is that it might boost the nation’s economic growth by incentivizing businesses to expand and take greater risks. The most generous estimate not produced by the White House is 1 percentage point of new annual growth.

But it will explode the nation’s debt and worsen the lives of tens of millions of Americans, most directly through cuts to Medicaid. It’s a bad tradeoff, and that’s coming from someone who regularly promotes the virtues of economic growth in this column.

Overlooked in most media coverage of the bill — and at nearly 1,000 pages, there’s a lot being overlooked — Congress will make it harder for the nation’s charities and foundations to raise money to help people.

Both the House and Senate versions of the bill change the deduction that businesses get for contributing money to charities. They would require businesses to give away at least 1% of their taxable income to be eligible for a charitable deduction.

Most businesses, especially small ones, do not meet that 1% threshold. With a tax incentive wiped out, some businesses will reduce their giving.

Meanwhile, the House version of the bill seeks considerably more revenue for the government from private foundations, which are taxed on their investment income.

Foundations with less than $50 million in assets would stay at the current tax level of 1.39% on investment gains. But it would rise sharply for larger foundations, hitting 5% for foundations with assets between $250 million and $5 billion. Minnesota has about 20 foundations that size.

The higher tax would leave larger foundations with less money to spend or donate, slowing their missions and their growth as they work to maintain their asset bases.

“These things together create a really challenging environment for nonprofits from a funding perspective,” said Katina Mortensen, vice president of policy and partnerships at the Minnesota Council on Foundations.

She said the council has joined others across the country by lobbying senators to remove both provisions from the final bill. The Senate on Monday was voting on amendments in a push to get it finished by President Trump’s July 4 deadline.

Passage looked uncertain, however, as Republican senators Thom Tillis of North Carolina and Rand Paul of Kentucky said they won’t support it. Because all Democrats are voting against the bill, another Republican who votes no would sink it entirely.

That would be just fine, in my view. The entire logic behind a single omnibus bill is as mistaken in the U.S. Congress as it is in the Minnesota Legislature. Here, recent legislative sessions concluded with monster-sized bills that were crammed with measures deserving more examination.

With so many substantive issues at stake in the Big Beautiful Bill, no one is talking about why Congress decided to paint a bullseye on the finances of the nation’s nonprofits and foundations.

The obvious explanation is that, because the main purpose of the bill is to extend the 2017 tax cuts and create new ones, Congress is seeking some fiscal balance. And it has apparently resorted to looking for pennies in the couch cushions.

That’s not even an apt metaphor because pennies hold too much value. The Joint Committee on Taxation, a nonpartisan committee in Congress, estimates the House provision that taxes foundation income more heavily would yield about $15 billion in revenue for the government over 10 years. Meanwhile, the nation’s debt is projected to grow by $3 trillion in that time because of the Big Beautiful Bill.

Of course, charities can never substitute for government’s role in helping people. You know this intuitively; just compare how much of your income goes to taxes with what you give to charities.

In Minnesota, all of the giving by organizations and individuals amounted to $8.7 billion in 2022, the latest year for which data is available. By contrast, federal and state spending on Medicaid in Minnesota totaled $16.3 billion that year, and $18.5 billion last year.

There is one provision in the Big Beautiful Bill that charitable organizations were pleased to see: a charitable deduction for Americans who don’t itemize when they file income taxes.

Because the 2017 tax bill raised the standard deduction, fewer people itemized and took a deduction for giving to charities, which ultimately reduced the incentive to donate. The House version of the new bill restores the incentive by creating a charitable deduction of $150 for individuals who don’t itemize their taxes; the Senate version has a $1,000 deduction.

“The non-itemizer deduction is a good thing,” Mortensen said, “but it’s not going to solve the problems that are being created by these other more significant funding shifts.”