Washington, D.C.– The House Committee on Ways & Means passed legislation authored by Congressman Erik Paulsen (MN-03) to modify and simplify the tax code for private charitable foundations. Under current law, private foundations face a two-tier tax structure that requires them to pay either a 1% or 2% excise tax. To qualify for the lower rate, a foundation must donate an amount greater than their average donations over the previous five years. This tax structure provides a disincentive for foundations to pay out large amounts of money in periods of need—after natural disasters, terrorist attacks, or during tough economic times. Paulsen’s bill, H.R. 4691, would eliminate the two-tier structure and replace it with a flat rate of 1%.

“It’s time to simplify and lower the excise tax on private foundation investment income to ensure charitable giving decisions are made based on the needs of our communities, not the tax code,” said Paulsen. “Charitable foundations make a world of difference in Minnesota with over 1,400 foundations donating more than $1 billion annually. Unfortunately, our current tax code discourages large donations in times of need.”

In addition to removing the disincentive to grant out large amounts of money, Paulsen’s legislation would reduce administrative and compliance costs. The bill has been endorsed by the Council on Foundations and the Alliance for Charitable Reform. Video of Congressman Paulsen’s testimony at the committee hearing is available here.

Paulsen, a champion of small business and advocate of free enterprise, entrepreneurship, and innovation, serves on the House Ways and Means Committee, the bicameral Joint Economic Committee, and is co-chair of the Congressional Medical Technology Caucus.

For more information on Congressman Paulsen’s work in Congress visit paulsen.house.gov. 

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