It appears that some philanthropists have come to realize that the structures of philanthropies in the United States don’t generate much in the way of charity for the level of tax deductions provided.
Given my background, I founded a small charity in the early 1990s,* this remains an area of interest for me.
There has been a massive growth in various charitable organizations, and a commensurate growth in the taxes not paid, but not a growth of the actual charity provided:
A group of high-profile philanthropists and foundations, along with estate and gift tax experts, have come together to push for reforms to charitable giving laws that would increase the amount of money available for nonprofits.
Their goal is to unlock some of the US$1 trillion sitting in private foundations and donor-advised funds (DAFs) that is not obligated to be distributed to nonprofits under current law. The group, known as the Initiative to Accelerate Charitable Giving, also aims to make it easier for the 90% of taxpayers who don’t itemize to gain a tax benefit for giving to charity.
“The purpose is to get money to working charities so they can put money to work,” says Ray Madoff, a professor of estate and gift tax estate planning, at Boston College, and the main force behind the U.S. initiative along with Houston philanthropist John Arnold.
Under current regulations—established in 1969, according to Madoff—private foundations are obligated only to pay out 5% of their assets to public charities annually. The rest can be invested as the foundation chooses, and can be passed down through generations.
DAFs, which have been an increasingly popular way to set aside money for charity, allow individuals to make donations into an investment fund managed by a public nonprofit, and get an immediate tax deduction. There is no requirement for funds to be distributed to a qualified public charity, since the DAF itself is managed by one.
The existence of these tax-advantaged vehicles, which today hold US$1 trillion in assets, raises a question that Madoff has studied for years. That is: What is society getting in return for not receiving those tax dollars? The answer, she realized, was “a lot less than we think.”
And while individuals do actually make grants to charities from their DAFs, they aren’t required to do so. “It’s not that everybody is not spending anything, it’s that the vehicle facilitates large contributions of money—and there are definitely US$1 billion DAF accounts that are subject to no payout requirements,” Madoff says.
Another problem is that private foundations can meet their annual 5% payout requirement by distributing funds to a DAF instead of directly to an operating charity.
The U.S. provides “significant tax benefits,” Madoff says, “but we only get them halfway there, and the [law isn’t] doing much to get the money all the way to charities.”
This coalition is asking Congress and the incoming presidential administration of Joseph Biden, for “emergency charitable stimulus” legislation to require private foundations to boost their annual payout rate to 10%, and to require a mandatory payout rate of 10% for DAFs, for three years, specifically to facilitate more dollars reaching charities hit by the Covid-19 crisis. According to the Independent Sector, an organization that supports the nonprofit sector, 7% of nonprofits in the U.S. are expected to close because of the pandemic.
“When tax benefits only apply to 10% of the population, then we are amplifying the voices of the wealthiest,” Madoff says. “It’s really important that tax benefits be available for all taxpayers.”
The group also believes Congress should ensure that private foundations can’t meet their payout obligations by transferring funds to a DAF, or by paying family member salaries (which is currently allowed by law).
For DAFs, the group is recommending that all funds in these vehicles are distributed within 15 years. They are also recommending an “aligned benefit rule,” that would allow a donor to get a break on capital gains taxes and estate and gift taxes upon funding their DAF, but would withhold the income-tax deduction until distributions are made to a public charity.
Modern charity increasingly serves as an employment guarantee to the Professional Managerial Class (PMC)†, which explains, for example, why college has become so expensive.
It all goes to special assistants to the senior VP in charge of filling out useless paperwork.
Endless number of people sending reports and creating data that never gets used for anything useful.
It’s all Dave Graeber’s Bullsh%$ Jobs.
*Even today, total turnover is probably less than $½ million a year, and it has no employees.
†Or, as I call them, the Democratic Party establishment’s (There is no Democratic Party establishment) base.