Private Foundation Tax Bill Would Cost $2 Billion, CBO Says

H.R. 640 would amend the Internal Revenue Code to restructure the excise tax on net investment income of private foundations from a dual-rate system (tax rates of 1 percent and 2 percent) to a single-rate system with a rate of 1 percent. Under current law, the calculation of the amount of excise tax differs depending on whether the foundation is exempt from income taxes or not, but in both cases a foundation faces a general excise tax rate of 2 percent on its net investment income. The rate of tax is reduced to 1 percent when a foundation has made charitable distributions in a year that exceed an amount based largely on its historical rate of distributions relative to its assets.

The staff of the Joint Committee on Taxation (JCT) estimates that enacting H.R. 640 would reduce revenues, thus increasing federal budget deficits, by about $2.0 billion over the 2015-2025 period. The estimated budgetary effects of H.R. 640 are shown in the following table.

                              CHANGES IN REVENUES

JCT has determined that the bill contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act.

The CBO staff contact for this estimate is Nathaniel Frentz. The estimate was approved by David Weiner, Assistant Director for Tax Analysis.