04/14/2025

Tax Reform Shouldn’t be a Backdoor Attack on Nonprofits

Considered policies could reshape the entire structure of how such institutions function

By Avi S. Olitzky

With political chaos dominating headlines, it’s easy to miss the quieter moves coming out of Washington — moves that could do serious, long-term harm to civil society in the United States. As the expiration of the 2017 Tax Cuts and Jobs Act (TCJA) approaches at the end of 2025, Congress is considering how to fund its extension. One of the targets? The nonprofit sector.

Behind closed doors and buried in committee reports, lawmakers — especially those on the House Ways and Means Committee — are intensifying scrutiny of tax-exempt organizations. Committee Chair Jason Smith, R-Mo., has voiced concerns about the “proliferation” of nonprofits and whether their activities align with the “spirit or letter of the law.” Some members, such as Rep. Randy Feenstra, R-Iowa, are questioning whether nonprofits that offer similar services to for-profit entities should retain tax-free status. Meanwhile, influential voices like Scott Hodge — formerly of the Tax Foundation and now with Arnold Ventures — are advocating for sweeping changes, arguing that the nonprofit sector represents a hidden tax gap that should be closed.

Proposals under consideration include applying the full corporate tax rate — 21% — to any revenue that isn’t strictly charitable donation-based. That would include membership dues for trade and professional associations, registration and tuition fees for educational programs and industry certifications, sponsorship income from conferences and conventions, and even returns on investment portfolios. These aren’t fringe funding sources — they are core operating revenues for the vast majority of nonprofit organizations. Targeting them is not about curbing abuse. It’s about reshaping the entire structure of how nonprofit institutions are allowed to function.

Please select this link to read the complete op-ed from The Minneapolis Star Tribune.