NEW YORK (AP) – The virus pandemic has wiped out jobs and businesses, and left many U.S. families unable to afford food. It also created a crisis for charities: too much need, too little funding.
And now it’s sparking a debate over a divisive question: should philanthropic groups donate more money to charity? Should they be forced to do so?
If you ask someone like Chuck Collins, they’ll get you a resounding yes.
Collins, director of the Inequality and Welfare Program at the Institute for Policy Studies, a progressive think tank, believes the government should force foundations and donor-advised funds to increase their contributions. Philanthropic groups enjoy tax-privileged status, and many of them have seen their wealth multiply through stock market profits and other investments.
“We’re in the middle of an emergency,” said Collins. “The pandemic is a serious matter that we must do something about now.”
Collins and others are pushing for a proposal to Congress that foundations and donor-advised funds must bring in at least 10% of their assets annually for three years.
If passed, this would be the first major change to the nonprofit funding laws since the Tax Reform Act of 1969. This law establishes a rule that foundations must donate at least 5% of their assets annually in order to maintain their tax-exempt status. Funds advised by donors, which are comparable to non-profit investment accounts, no longer have to make donations within one year.
The payout, proponents say, would be an additional $ 200 billion to charities that serve families suffering from the pandemic. The proposal is supported by a number of leading philanthropists, including Scott Wallace of the Wallace Global Fund and Abigail Disney.
“We had no way of imagining the level of inequality and concentrated wealth we have now in 1969,” said Collins. “We can do something about it.”
However, it remains far from clear that his proposal can get enough political support to reach Congress. Even within the philanthropy community, some leaders advocate far more humble steps to increase donations. Others prefer to keep the status quo.
The philanthropist John Arnold, co-founder of Arnold Ventures, is skeptical of a government mandate to force foundations to increase their payouts. Arnold argues that the same goal can be achieved in other ways – for example, by reducing gaps that allow foundations to count donations in dubious ways, or by including compensation for family members as part of their annual payouts. He also questions the idea of making government-mandated contribution requirements temporary.
“It is a little difficult for groups to double their payout for a limited number of years and then come back,” said Arnold. “I also think that it is difficult for many groups to deal with sudden fluctuations in money and withdrawal. It is difficult to run such an organization.”
Arnold suggests a more humble solution – the Accelerated Donation Initiative. According to this plan, the assets of a fund advised by donors would have to be donated within 15 years. Arnold would also add a sweetener: foundations that donate more than 7% of their wealth in a year would not have to pay the excise tax, which is usually less than 2% that they usually face.
His plan – developed with Ray Madoff, director of the Philanthropy and Welfare Forum at Boston College Law School – is supported by some of America’s largest foundations, including the Ford Foundation, the William and Flora Hewlett Foundation, and the WK Kellogg Foundation.
But even the Arnold Plan is facing opposition from some nonprofits who oppose any government efforts to get foundations to increase their payouts. Among them is the Philanthropy Roundtable, a conservative network that opposes government involvement in private charitable donations.
“We don’t really think it’ll accelerate giving at all,” said Elise Westhoff, President and CEO of the Round Table, of Arnold’s proposal. “It really is a solution to looking for a problem.”
Amid last year’s devastating pandemic recession, donations to charity rose slightly over the course of the year. Profits were boosted in part by a record year from donor-advised funds, including Fidelity Charitable, whose contributions rose 24% to $ 9.1 billion.
The Ford Foundation also increased its donations last year, including issuing $ 1 billion in social bonds to raise money for social causes such as economic inequality.
“Charitable giving was a silver lining in this crisis and frankly throughout history,” said Westhoff. “One of the reasons is that it was always voluntary.”
While it’s difficult to come up with exact numbers, it is believed that donor-recommended funds pay out an average of 20% per year. Jake Cook, a managing director of BDO, said he thinks the risk that the government is placing withdrawal requirements on the funds is that some donors might actually reduce their donations.
“If you set a minimum,” Cook said, “then you may have a target number that people are working towards, even if they give more.”
Westhoff says the scenario affects them. When the initiative to accelerate charity was found gaining traction in Congress, the Philanthropy Roundtable led a coalition of 64 “free market and conservative organizations” calling on Congress to oppose any new restrictions on charity temporarily. as Collins and other proponents prefer.
Conservatives also expressed concern about Xavier Becerra, President Joe Biden’s nominee to head the Department of Health and Human Services. In 2008, Becerra identified tax-deductible charitable donations as “$ 32 billion dollars” that would be scrutinized if nonprofits did not improve their donation records for minority communities.
All of these disagreements make it less likely that Congress will act on the matter, warns Steve Taylor, senior vice president and public order attorney for United Way Worldwide.
“Members of Congress have nothing to gain from passing legislation in any sector, including the nonprofit sector that the sector is divided into,” said Taylor. “If you have a small group that says, ‘This is what we need,’ and then you have a number of charities and donors that say, ‘No, we don’t need that’ – that ends the conversation right there. “
Although United Way would likely benefit from increased donations from foundations and donor-advised funds, Taylor said he feared these proposals would deter Congress from providing more direct assistance to nonprofits. These grants could include increased tax incentives for donations to charities and increased support for nonprofits in the next version of the government’s paycheck protection program.
“The bad actors will find a way to get around this,” said Taylor, “and the good actors will then have a bureaucratic burden that will make no real difference.”
Teri Behrens, executive director of the Johnson Center for Philanthropy at Grand Valley State University, says it’s too early to say if or how Congress could act. Still, she says, her research suggests that any federal effort to encourage donations carries a risk.
Even if Congress required foundations and donor-recommended funds to pay out at least 10% of their fixed assets annually for three years, Behrens said it could take 20 years to replenish money spent over those three years.
“We’re taking money from future needs,” she said.
On the flip side, Behrens said that numerous nonprofits are currently shutting down, and their research suggests the trend will survive the pandemic.
Hoping on his plan to ask for higher payouts, Collins argues that the tax system’s favorable treatment of foundations and donor-advised funds could be the strongest rationale.
“If taxpayers didn’t subsidize their existence,” he said, “they might have a point on their sovereignty. But you and I put in a sizable amount of money: 75 cents of every dollar a billionaire gives to charity.” Tax losses are lost, so there is a public interest. “
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