Extending the 2017 tax cuts is a top priority for Congress. As lawmakers determine how those cuts will be paid for, some are considering an increase in the excise tax already levied on the endowments of the nation’s private foundations. The negative impact of a policy like this would not only affect charitable organizations, but communities across the country.
Here are just a few ways this would hurt giving:
- Increasing the excise tax on the endowments of private foundations whose living and deceased donors funded their philanthropy with specific values, principles and goals in mind would constitute a violation of donor intent across the ideological spectrum. The mission of The Andrew W. Mellon Foundation is “to strengthen, promote, and defend the arts and humanities as essential to democratic societies.” The Duke Endowment is committed to funding charitable causes in North and South Carolina. The Lynde and Harry Bradley Foundation supports “vibrant community life in Milwaukee and throughout Wisconsin [and]…efforts across the country that protect and promote the ideas and institutions that made the Bradleys’ success possible.” For these and many other foundations, an increase in excise taxes means fewer dollars for the very causes that sparked their existence.
- Charitable giving will drop, as every dollar removed from a foundation’s endowment is one less dollar going to critical services in cities and towns across the country. We will be robbing charity to fuel increased federal government spending.
- It is worth remembering that when the private foundation excise tax was first approved in 1969, there were suggestions it be used to bolster the Internal Revenue Service’s oversight of tax-exempt services. That provision, however, was never part of the legislation, and the current tax revenue on funds limited by law to charitable use are already used for non-charitable purposes. We should be wary of building on a questionable decision made over 50 years ago.
- Additional regulations and taxes don’t burden only large, progressive foundations – they burden all foundations. Most foundations do not command multi-billion dollar endowments and do not have the resources and expertise to navigate these types of taxes and regulatory changes. According to Cause IQ, over half of America’s 191,162 private foundations have less than $250,000 a year in revenue. These are the grantmakers working quietly and effectively to provide lifelines to underserved communities in our country and strengthen civil society.
- We should resist supporting policies that pick winners and losers based on ideology because ultimately, what goes around comes around.
- We already have rules in place for foundations and endowments to hold them accountable. Private foundations have a federally-mandated payout rate requiring them to make annual charitable contributions that equal or exceed 5% of the fair market value of their endowment assets. They are also prohibited from self-dealing and there are regulations in place to protect misuse of funds.
- The last thing we need to do now is grow the federal government on the back of philanthropy by increasing taxes on private giving vehicles. We would be propagating a strategy that redistributes wealth and resources from private Americans to the federal government.
