Philanthropy Roundtable president and CEO Elise Westhoff wrote a letter to the editor at the Chronicle of Philanthropy in response to a recent push to curb philanthropic freedom. You can read the full text, published on Oct. 8, below.
To the Editor:
Many of us have been awaiting the public announcement of the new initiative being spearheaded by philanthropist John Arnold and law professor Ray Madoff, covered in the Chronicle’s article “Philanthropist Urges Congress to Force More Giving From Donor-Advised Funds and Foundations” (October 1).
Some of us had hoped they would reconsider calling for legislative action — especially as so many are voluntarily increasing their efforts to solve society’s most pressing challenges. As a voice for the largest network of philanthropists working to advance liberty, opportunity, and personal responsibility, we are troubled by many of the specifics of the Arnold-Madoff proposal. If it is intended to accelerate giving, we are concerned that overregulating donor-advised funds and private foundations will have the opposite effect.
First, the proposal overlooks and threatens many of the advantages of DAFs, which are the nation’s fastest-growing charitable-giving vehicles.
DAFs democratize giving, making it easier for smaller donors to participate thoughtfully in the important work of philanthropy. The existing legal structure for DAFs includes robust protections for donors, recipients, and DAFs themselves.
The National Philanthropic Trust reports that DAFs have an average annual payout of 20 percent. By introducing unnecessary complexity, penalties, and restrictions, the Arnold-Madoff proposal disincentivizes motivated donors to give through an existing vehicle that meets many of their needs — from ensuring their philanthropic dollars are available over the long term to protecting their anonymity in giving.
The Arnold-Madoff proposal goes further by attempting to impose mandates on private foundations as well. In the plan, payments from private foundations using DAF vehicles would not count toward payout requirements. DAFs can be used by foundations for a variety of legitimate reasons, including to protect the safety of those giving to causes that may bring threats of violence.
Family foundations are also targeted in the proposal in a way that sets a dangerous precedent.
The Arnold-Madoff plan seeks to create a system in which someone’s last name should determine how payout calculations are made.
It suggests that the work and expense of family members involved in the time-consuming and important work of their family foundations should not count as legitimate operating expenses when it comes to payout.
Somehow, though, if the same work is done by someone with a different name, it is a “worthy” expense. One can envision how that insidious distinction will be used to differentiate between the “right” and “wrong” kinds of board or staff members.
Further, targeting family members in this way is unnecessary, given self-dealing and “reasonable and necessary” rules already in place. Although there have been cases of abuse, civil and criminal penalties have been applied — and nonfamily members are just as prone to wrongdoing as anyone else.
At the Philanthropy Roundtable, we believe donors are capable of making informed and intelligent choices about how, when, and where to give. Let’s spend our time solving the significant problems facing our country and our world rather than creating unnecessary distractions.
The Philanthropy Roundtable