Certain outcomes of the recent election seem straightforward and obvious. President Trump’s administration will attempt to enact “America first” policies, including tariffs, lower taxes, less regulation, and—if given the power to control monetary policy—lower interest rates.
The consequences of these policies are more uncertain, particularly the impact of tariffs, on various sectors of the U.S. and global economies. Even more difficult to predict is the impact of the current Trump presidency on specific micro-segments of the economy and population, including the nonprofit community.
Therefore, we are left to speculate on the potential consequences of the election for the private foundation community.
The pace of private foundation formation could increase.
With recession fears diminishing, U.S. third-quarter 2024 GDP numbers revised upwards and jobless claims are trending downwards, the economy seems to be on solid footing. The outlook for corporate activity, particularly mergers and acquisitions, appears brighter as the regulatory environment undergoes a significant shift. As barriers to deal-making ease, we anticipate improved exit opportunities for mature investments. Economic growth has tended to correlate with higher income and wealth, which can increase philanthropic activity and benefit the private foundation community.
The opposing view is a two-step argument suggesting: (i) the Trump-led Tax Cut and Jobs Act of 2017 increased the personal standard deduction, thereby reducing the benefit of the itemized deduction for charitable contributions and (ii) this led to a decline in charitable contributions. However, historical data and common sense suggest otherwise. Private foundations are created as leaders seek opportunities to give away their wealth; wealth and philanthropy are intrinsically related.
In efforts to prevent or counteract certain specific policies, private foundations will accelerate their giving.
Under Trump’s presidency, the U.S. will likely exit climate change commitments made under the Biden administration, including the Paris Agreement. Environmentally focused private foundations, under this scenario, are likely to respond by increasing their funding and advocacy activities in support of the intent of these conventions.
Private foundations have consistently shown their willingness to give generously as was demonstrated by increased spending during the pandemic when assistance was most needed despite the economic and inflation concerns at the time.
Anecdotally, we also learned of several education-related private foundations that were preparing to increase advocacy and giving in response to the Trump camp signaling it may seek to substantially reduce the role of, or outright eliminate, the Department of Education.
Private foundations will remain modestly regulated.
It is highly unlikely that the Trump Administration will dedicate meaningful time to the regulation of private foundations. In fact, we expect the Trump Administration will seek to reduce regulation wherever possible, including advocating for a smaller IRS—the enforcement agency primarily responsible for regulating private foundation activities. Therefore, we expect the private foundation community to remain modestly regulated, potentially moving toward deregulation.
Specific Private Foundations may be targeted.
Given recent rhetoric, there appears to be legitimate risk that private foundations with missions that run counter to President Trump’s philosophy may be targeted for enforcement or termination. Recently, the House narrowly passed a bill that gives any president executive authority to remove tax-exempt status from charities deemed in support of a terrorist organization. While terminating nonprofits engaged in terrorism seems reasonable, opponents believe the bill provided an unacceptable level of executive authority.
Summary
As we assess the outcomes of the presidential election, our understanding and expectations remain speculative as there is limited evidence to evaluate potential policy impact. However, based on President Trump’s stated positions, certain assumptions are not unreasonable.
We believe philanthropic activity should increase, both in terms of giving rates and the formation of new private foundations. While the specific activities of certain private foundations may place them in the crosshairs of the new administration, increased regulation of private foundations is unlikely to become a high priority. We believe private foundation activity will likely accelerate, and private foundations will remain modestly regulated and retain their ability to operate with enormous flexibility. ⬛
Carol O’Neale, CFA, Principal/Consultant, and Tim Wong, CFA, CAIA, CIPM, Investment Associate also contributed to this perspective.
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