Eroding Foundations: How New Tax and Budget Policies Threaten Nonprofit Missions

Recent projections from the Congressional Budget Office (CBO) show sweeping changes to federal tax and spending rules could drive the national deficit up by $3.4 trillion over the next decade—and impact as many as 10 million Americans through lost healthcare coverage. Nonprofits, especially those serving vulnerable communities, will feel these shocks acutely. Here’s an in-depth look in a tone tailored for our sector.

🧭 1. What Is Driving the Rising Deficit?

The CBO confirms the newly signed “One Big Beautiful Bill” will increase federal debt by around $3.4 trillion from 2025 to 2034 as revenue declines and temporary tax provisions are extended. When factoring in interest, total debt could swell to over $4 trillion.

🩺 2. Healthcare Coverage Takes a Hit

Because of Medicaid cuts and the sunsetting of Affordable Care Act (ACA) subsidies, 10 million people are projected to become uninsured by 2034. Some estimates suggest even higher numbers when broader amendments are included. That’s a major concern for nonprofits focused on community health.

📉 3. How This Affects Nonprofit Service Delivery

• Increased Demand, Limited Resources: With more uninsured individuals, nonprofits providing free or sliding-scale services may see increased demand without a corresponding rise in funding.

• Pressure on Facilities: Rural and community clinics, especially in states facing deep Medicaid cuts—like Texas—face serious financial strain. 

• Strained Safety Nets: Cuts to SNAP and other support erode food and housing security, pushing more people toward nonprofit services.

⚖️ 4. Economic Side Effects You Should Know

• Higher Interest Costs: Debt growth means interest obligations may crowd out future budgets. This translates into higher borrowing rates across the board—affecting mortgages, nonprofit bonds, or lines of credit The GuardianWikipedia.

• Dampened Economic Growth: Heavy deficits can slow GDP growth, reducing donations, grants, and local economic vitality The GuardianWikipedia.

• Inflation Pressures: Larger deficits risk fueling inflation, making essentials like food, medicine, and utilities more expensive for the communities nonprofits serve.

🌱 5. Nonprofit Sector Resilience Strategies

A. Strengthen Funding Stability

• Diversify revenue: explore fee-for-service models or social enterprise options.

• Advocate: join coalitions urging policymakers to safeguard health and safety-net programs.

B. Adapt Service Models

• Scale community clinics and mobile units to fill emerging access gaps.

• Partner with hospitals and insurers offering transitional care for the newly uninsured.

C. Insurance Navigation Support

• Provide proactive ACA enrollment assistance, particularly before subsidies expire.

• Offer legal aid and benefits counseling to families at risk of losing coverage.

👥 6. Policy Solutions to Watch

• Restore ACA Subsidies: Reinstating emergency premium assistance—currently set to expire—could immediately reduce uninsured numbers by millions Business Insider.

• Advance Medicaid Protections: Encourage state-level access to funding waivers and prevent deep eligibility cuts.

• Pursue Deficit-Reducing Reforms: Support moderate revenue enhancements paired with responsible spending to stabilize long-term public finances.

🔍 7. Why This Matters Over the Long Haul

A weakening federal fiscal path destabilizes the very ecosystem nonprofits rely on: grant funding, workforce availability, and community stability. The choices made today about tax policy and entitlement programs will directly shape nonprofit capacities into the next decade.

What Supporters of the Bill Are Saying

While many in the nonprofit and policy communities have voiced serious concern over the projected rise in the deficit and loss of health coverage, supporters of the tax and spending law argue that it will deliver needed economic stimulus and rein in what they view as excessive federal spending.

1. Support for Permanent Tax Cuts

Proponents argue that making the 2017 tax cuts permanent gives individuals and businesses long-term financial certainty. They believe lower tax rates encourage investment, job creation, and entrepreneurship—particularly among small businesses. By leaving more money in the hands of consumers and employers, they contend, the private sector will be better positioned to drive economic growth without depending on government programs.

“We’re restoring America’s economic engine by letting hardworking people and job creators keep more of what they earn,” said one House Budget Committee member during debate over the bill.

2. Reducing “Wasteful Spending”

Advocates highlight the bill’s changes to Medicaid and food assistance programs as steps toward eliminating fraud and inefficiency. They claim that by tightening eligibility rules and introducing stricter audits, the government can prevent misuse of public funds and ensure programs serve only those deemed truly eligible.

Supporters also argue that certain federal benefit formulas have been exploited by states to inflate costs. This bill, they say, “closes loopholes” and prevents overspending at the state level.

3. Boosting Fiscal Responsibility

From a fiscal perspective, supporters claim that the legislation is a necessary step toward stabilizing the long-term federal budget by capping discretionary spending and reducing what they see as government overreach.

While the CBO projects higher deficits, supporters often argue that the long-term economic benefits of growth and spending discipline will eventually offset these initial costs. In their view, the real threat to future generations is not the debt itself—but unchecked entitlement growth and a bloated federal bureaucracy.

4. Encouraging State Innovation

Backers of the bill suggest that reducing federal involvement in programs like Medicaid will empower states to craft more innovative and efficient solutions tailored to local populations. They argue that federal “one-size-fits-all” models have stifled experimentation and driven up costs without improving outcomes.

5. Creating a More Market-Driven Economy

Finally, some supporters view the legislation as a philosophical correction—shifting more responsibility for healthcare, food security, and retirement from the federal government to the private market and civil society. In this framework, charitable organizations, religious groups, and local institutions are expected to play a greater role.

Nonprofit Sector Perspective

While these arguments resonate with supporters of smaller government and lower taxes, they raise critical questions for nonprofit organizations:

• Can charitable and community organizations realistically absorb the service demand created by reduced federal support?

• Will long-term economic growth arrive in time—and at a scale—that offsets the loss of coverage, food assistance, or grant funding today?

• And how do we ensure equity and access for vulnerable populations in a system that leans more heavily on private solutions?

These are the discussions the nonprofit sector must now lead—with facts, compassion, and a commitment to both fiscal and human sustainability.

📌 In Summary for the Sector

The CBO’s latest forecast sends a clear signal: this bill’s cost is more than a line item in a budget—it threatens access, affordability, and community well-being. Nonprofits should lean into partnerships, diversify revenue, and take active roles in policy dialogues that will define service landscapes for years to come.

 

Frequently Asked Questions: How New Tax and Budget Policies Affect Nonprofits

---

1. What is the new tax and spending law, and why is it important to nonprofits?

The recently signed legislation—referred to in some reports as the “One Big Beautiful Bill”—extends the 2017 tax cuts and implements major changes to federal spending. It’s projected to add $3.4 trillion to the national deficit over the next decade. For nonprofits, this matters because it reduces federal revenue while simultaneously cutting support programs that our communities rely on, including Medicaid and SNAP.

---

2. How does this law affect the federal deficit and national debt?

According to the Congressional Budget Office (CBO), the law will increase the federal deficit by $3.4 trillion over 10 years. When interest on the debt is factored in, the real impact could exceed $4 trillion. This means a greater share of future federal budgets may go toward debt service rather than community programs, grants, or essential infrastructure.

---

3. What’s the connection between the national deficit and nonprofit funding?

As interest payments on the debt rise, discretionary spending on programs that fund or complement nonprofit missions—like housing, education, workforce training, or public health—could shrink. This puts pressure on philanthropy and local agencies to fill gaps previously covered by federal funds.

---

4. How many people are expected to lose health insurance under this law?

The CBO projects that over 10 million Americans could lose health coverage by 2034 due to Medicaid eligibility rollbacks and the expiration of enhanced ACA subsidies. Many of these individuals will turn to nonprofit clinics, free health programs, or community health workers for support.

---

5. Will this affect food assistance programs like SNAP?

Yes. The legislation includes significant reductions in food aid programs, including SNAP. These changes could increase food insecurity and expand the demand for food pantries, meal programs, and other hunger relief efforts—many of which are run by nonprofits or supported by them.

---

6. What does this mean for nonprofit service delivery?

The sector is likely to experience:

• Increased demand from people losing healthcare and food benefits

• Greater strain on already limited operational resources

• Delays or uncertainty in federal and state grants tied to public health and social safety net programs
  This means many organizations will need to stretch capacity or pivot programming to meet growing needs.

---

7. How might this affect the broader economy—and nonprofit funding streams?

As the national debt grows, interest rates may rise. That can:

• Slow economic growth

• Reduce private giving due to tighter household budgets

• Increase operational costs (e.g., rent, interest on nonprofit credit lines)
  Foundations may also become more conservative in grantmaking, particularly if their endowment returns are impacted by economic volatility.

---

8. What can nonprofit leaders do to prepare or respond?

• Review budget assumptions: Build contingency plans for potential grant cuts or demand surges.

• Strengthen donor engagement: Maintain flexible funding relationships and communicate your impact clearly.

• Advocate: Join coalitions urging policy reforms that protect essential programs and community stability.

• Collaborate: Share resources with peer organizations or coordinate services to avoid duplication and maximize reach.

---

9. Are there policy proposals that could reduce the harm or balance the budget more equitably?

Yes. Experts recommend:

• Restoring ACA premium subsidies

• Preserving Medicaid funding levels

• Reforming tax expenditures to reduce deficits without slashing safety net services

• Investing in programs that offer long-term returns (like early education or preventative health), which help stabilize demand and reduce future costs

---

10. How can we stay informed and support affected communities?

Stay updated through trusted sources like the Congressional Budget Office, Center on Budget and Policy Priorities (CBPP), and KFF (Kaiser Family Foundation). Consider hosting public forums, town halls, or advocacy trainings. And ensure your programs have a feedback loop—so those affected by these policies can help shape your response.

Sources & Further Reading:

• CBO’s $3.4 T deficit projection and 10 M coverage loss Houston Chroniclereuters.com+1Jacksonville Journal-Courier+1Yahoo Finance+6AP News+6https://www.kcrg.com+6

• Detailed analysis on interest, deficit growth, and policy baselines The GuardianCRFBWikipediaWikipedia

• State-level and ACA subsidy implications Houston Chronicle

Disclaimer:
This article is intended for informational purposes only and does not constitute legal advice. Foundation List is not a law firm and does not provide legal counsel. We encourage readers to consult with qualified immigration or employment law professionals for guidance specific to their organization, workforce, or circumstances. All data and policy references are current as of publication but may be subject to change. Foundation List does not take a political position on immigration policy or enforcement. Our aim is to support the nonprofit community by sharing relevant information that may impact workforce planning and service delivery.