ACE Act Would Reduce Funding for U.S. Nonprofits

In the first half of the 19th century, a French aristocrat and civil servant took an assignment to visit the recently formed United States of America. A passionate observer of people and the workings of the new republic, a young Alexis de Tocqueville would make many important observations about the American way of life. Chief among them:

I have seen Americans making great and sincere sacrifices for the key common good and a hundred times I have noticed that, when needs be, they almost always gave each other faithful support. 

From the founding of our nation, Americans gave. They gave generously to serve and support those in need in their communities. This spirit of generosity continues today. We seek to find ways to help others flourish and we ache when we see suffering. Even in our most challenging moments, our instinct is to look to our neighbors to ensure they are okay. Anecdotally, we saw numerous examples of this idea in practice over the last two years as countless individuals and organizations looked for ways they could help serve and give during the COVID-19 pandemic. The human push toward generosity is also backed by data. In a year of great economic uncertainty, charitable giving set records.  

It is this instinct of generosity that is inspiring some of our elected leaders to consider new reforms to charitable giving. Like so many of us, they see great challenges in our communities and want to do something to serve those in need. This can be highly beneficial, for example, the extension of the charitable deduction to all people in 2020 and 2021 proved catalytic in terms of giving. 

However, one strategy that has come forward is the introduction of new regulations on charitable giving, specifically foundations and donor-advised funds. Recent proposals like the ACE Act are written with honorable intent and the altruistic desire to see more resources brought to address the challenges facing our communities. Unfortunately, sometimes efforts driven by the best of intentions can have counterproductive consequences. In this case, the proposed regulations would actually hurt the very groups it is designed to help by reducing overall giving. We would see this outcome develop through two pathways.

First, increased regulations like those proposed in the ACE Act make it harder for people to give. This is a concern raised across the philanthropic community from organizations representing all areas of the giving ecosystem.

  • New rules governing donor-advised funds will discourage individuals from making investments focused on long-term or more strategic giving. 
  • Increased complexity will raise costs for donors, foundations and corporate giving programs, reducing the funds available for nonprofits and those in their communities.
  • More regulation will make it harder for philanthropy to plan for long-term needs or emerging challenges that may wait around the corner.

That last bullet connects directly to the second pathway that the proposed rules will hurt rather than help those in need: Giving more now may leave us vulnerable to great challenges we have yet to face.

When the COVID-19 pandemic began, there was a great push in the philanthropic space to give like never before. Like so many other funders, the Murdock Trust did our best to rapidly adapt our processes and get vital funds into the hands of organizations serving on the front lines of the crisis. But there was also tension. Some voices, working with noble intentions but incomplete perspective, pushed for organizations to “give everything” to the fight against the pandemic. There was an attitude that this crisis needed every dollar from philanthropic reserves. 

Following the initial impact of COVID, Oregon and the West Coast saw a historically tragic wildfire season. Flames destroyed homes, livelihoods and communities. The demands of evacuating and serving tens of thousands of individuals in the middle of a pandemic were almost overwhelming. These efforts were further challenged by a lack of resources.  Many funders who normally would have made significant financial contributions to support these needs – who wanted badly to be able to give to this and other deserving causes – were often unable to because they had invested so heavily in responding to pandemic needs. We’ve all learned there will be another crisis or challenge on the horizon.

Under the current rules governing philanthropy, organizations can save and invest to help ensure there will be a safety net when the next crisis occurs. But regulations requiring increased payout rates reduce our ability to plan or prepare for future needs.

While these realities are sobering, the good news is there are ways to help improve the process of giving in our communities. 

The easiest way to increase charitable contributions is to make giving … well … easy! Communities thrive when individuals, foundations, corporate partners and the government all find ways to give and partner with one another, creating an ecosystem of support that serves diverse needs. With fewer restrictions and more incentives, it gets easier for organizations to think creatively, build partnerships and bring more resources to the needs of our communities more quickly. 

This type of environment also makes it easier for individuals to give at all levels. Data shows that giving by individuals accounts for 70-80% of all charitable contributions in the U.S. What’s more, donor-advised funds are a tool primarily used by individuals to facilitate long-term, thoughtful and strategic giving – and providers report most DAF accounts are smaller than $25,000. If the effort to make DAFs more complicated succeeds, it will significantly stunt this giving tool.

While we disagree with proposals like the ACE Act, we are eager to engage in the conversation and partner with those who want to help strengthen and encourage giving now and for generations to come. After all, generosity is key to helping our communities flourish.

Steve Moore is the executive director of the M.J. Murdock Charitable Trust, a nonprofit foundation that has awarded more than $1.2 billion in capacity building grants to nonprofits serving the Pacific Northwest since 1975.

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