Philanthropy Roundtable President and CEO Elise Westhoff was published at TheWall Street Journal, writing how the “Initiative to Accelerate Charitable Giving” would harm, rather than help, philanthropy. You can read the full text, published on Dec. 14, here, or read it below.
It takes a fine sense of irony to start the season of giving by trying to limit Americans’ generosity. Yet that would be the outcome of a high-profile legislative proposal unveiled on Dec. 1, “Giving Tuesday,” conceived by former hedge-fund manager John Arnold and Boston College law professor Ray Madoff. The proposal would stifle Americans who want to support worthy causes but aren’t superrich. It would also further the goals of progressive politicians who seek to punish charitable giving they don’t like and can’t control.
The “Initiative to Accelerate Charitable Giving” is framed as a way to force the wealthy to give more. It enjoys the backing of some of America’s biggest and most prominent foundations, including Ford, Kresge, Kellogg and Hewlett. These large and powerful institutions are effectively trying to dictate how smaller and less influential donors give, which dovetails neatly with the goals of progressive politicians and activists.
The centerpiece is a series of regulations on donor-advised funds, a popular option for philanthropists outside the 1%. While the foundations supporting the initiative control a combined $38 billion, the average donor-advised fund has a little more than $166,000 set aside for charity. Donor-advised funds allow individuals to donate as much as they like annually, even a few hundred dollars. Some choose to give right away, while others take a long-term approach, waiting to align their priorities with the needs of the communities they aim to serve. These funds also provide donors with the option of privacy—the particular focus of political attack.
Donor-advised funds have multiplied. The number of accounts has risen by more than 300% since 2010, and as their popularity has grown, so has the criticism. Sen. Sheldon Whitehouse routinely savages them, since he can’t see and therefore attack or control who gives to them. Yet the vast majority of givers are supporting critical services helping people in need, and liberals use donor-advised funds to support their favored causes too.
The Arnold-Madoff initiative would starve them of funding. Most notably, it encourages Congress to pass legislation that would force donor-advised funds to disburse money within 15 years or lose tax deductibility, pushing more money into the hands of tax collectors instead of charities. The 15-year marker is entirely arbitrary, and discriminatory: The foundations that back the proposal would still be able to hold their tax-advantaged funds in perpetuity. Yet donor-advised funds already have a higher payout rate than the required minimum payout for a foundation—approximately 20% compared with 5%—even though they have only a tenth of the $1 trillion managed by foundations. Donor-advised funds and private foundations alike should have the option to address the needs of communities over a longer time horizon.
The Arnold-Madoff proposal would take that long-term freedom away from smaller donors. It would also lead to less charitable funding during crisis moments. Payouts surpassed contributions in the wake of the 2008 financial crisis, and early signs indicate the same may happen in the pandemic. By putting a sell-by date on donor-advised funds, this “rainy-day fund” would dwindle. Donors would also have fewer opportunities to involve their children and grandchildren in their giving. And anonymous giving would take a hit—a gift to those who want to name and shame and “cancel” donors with whom they disagree.
Beyond donor-advised funds, the Arnold-Madoff proposal takes aim at intergenerational wealth. Specifically, it mandates a new model for private foundations that have employees or board members from the families of the foundation’s donors. Foundations would be unable to count the salaries and travel expenses of family members toward their annual 5% payout, even though such payments are made in service of the organization’s mission. Payments and travel reimbursements to employees and board members from outside the family would be treated differently, even for the same work.
This is a first step toward limiting a family’s ability to serve its own foundation, further discouraging charitable giving. The victims would be smaller and less-wealthy donors, since only 2% of private foundations have more than $50 million in assets. For those who want to tax or limit generational wealth, stifling family foundations is a worthy project. (Similar initiatives would require foundations to pay 10% of their funding every year, effectively forcing them to spend down their assets.)
It’s no surprise where this controlling attitude comes from. Ms. Madoff, the primary author of the initiative’s policy proposals, has made her career calling on philanthropy to serve the “public good.” But like many progressives, her definition of the public good tends to be narrow, springing mainly from a worldview hostile to wealth and private action, while supportive of government regulation in pursuit of predefined political and cultural aims.
This view cannot be squared with the longstanding purpose of philanthropy. Throughout America’s history, generous citizens have voluntarily turned to charity to solve society’s problems without external control. These personal, passionate and varied efforts have improved countless lives and spurred progress on some of the country’s toughest challenges, from polio to educational opportunity for low-income families. The coronavirus pandemic is a case in point: Philanthropic giving was up 7.5% in the first six months of the year, and major donor-advised fund providers have seen both the value and number of charitable grants rise by about 50%.
The current system of philanthropic freedom enables Americans of all backgrounds, beliefs and bank-account sizes to support worthy causes and benefit their communities and the country. That system should be preserved and expanded, not controlled and shrunk by a powerful few.