Overview
- The Senate Committee on Finance released its draft of the One Big Beautiful Bill (OB3), which reduces or eliminates changes to the taxation of endowments and private foundations compared to the House-approved bill.1
- Reduces the endowment tax tiers, dropping the top rate from 21% to 8%.
- Removes any proposed increase or modification to the private foundation tax.
- Reminder: Bills are revised frequently before becoming legislation, and OB3 is likely to undergo further revisions.
- Legislative Process: This draft is the beginning of the negotiations within the Senate, which still needs to vote on the revised bill. In the Senate, Republicans have a 53-47 majority. If approved, the bill will return to the House for another vote. The final step is obtaining President Trump’s signature.
- Timing: President Trump has requested Congress to finish OB3 before July 4th.
Endowment Tax Tiers Reduced
The Senate Finance Committee has reduced the tax rates within the tiers, dropping the top rate of 21% to 8%. The current rate is 1.4%.
Both the Senate and the House bills exclude2:
- Religious institutions (e.g., Notre Dame University) from taxation.
- International students in the tax tier calculation (e.g., assets per eligible student). Without the inclusion of international students, higher education institutions with larger international student populations will be more likely to be pushed into a higher tax tier.
The investment impact at Senate tax tier levels is well below those of the House tax tiers, which will influence how much impacted endowments adjust their investment strategies and budgets.
No Private Foundation Tax Changes; Remain at 1.39%
Unlike the House version, the Senate Finance Committee has removed any proposed changes to private foundation tax.3 As a result, all private foundations would remain at the 1.39% excise tax on net investment income.
While the private foundation tax has received less media attention than the endowment tax, it is actually more financially meaningful ($15.9B vs. $6.7B in 10-year revenue4) as it is applied to all private foundations vs. the endowment tax which applies to a select number of private universities. This would be a benefit to private foundations to maintain their current tax rate, allowing these nonprofits to focus on funding their philanthropic missions.
Summary
These changes are a meaningful departure from the House-approved OB3 and are beneficial to both endowments and private foundations. For impacted endowments, the tax burden at the highest proposed rate of 8% is more manageable and under the Senate’s new language, private foundations will be subject to no change to their current tax obligations.
TIFF remains committed to closely monitoring these developments and advising clients accordingly.
The materials are being provided for informational purposes only and constitute neither an offer to sell nor a solicitation of an offer to buy securities. These materials also do not constitute an offer or advertisement of TIFF’s investment advisory services or investment, legal or tax advice. Opinions expressed herein are those of TIFF and are not a recommendation to buy or sell any securities.
These materials may contain forward-looking statements relating to future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. Although TIFF believes the expectations reflected in the forward-looking statements are reasonable, future results cannot be guaranteed.
Footnotes
https://www.finance.senate.gov/imo/media/doc/finance_committee_section-by-section_title_vii3.pdf
https://www.wsj.com/politics/policy/senate-trump-tax-bill-salt-medicaid-72ad5fa9
Joint Committee on Taxation, May 25, 2025.
