New Poll Finds Support for Foundations — but Not the Hefty Tax Breaks Their Donors Get

by Alex Daniels | July 14, 2022 | The Chronicles of Philanthropy

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Large majorities of Americans from across the political spectrum say foundations and other philanthropic funds should direct money to charities faster instead of holding onto those assets for future use, according to a poll released Thursday by an organization seeking to changern how federal charity law works.

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The survey, underwritten by the Institute for Policy Studies, comes as wealthy donors and private foundations have faced criticism for keeping money tied up in endowments rather than sending it directly to charities. The criticism has come from all politicalrn directions, including from progressive social-justice organizations that want foundations to make more grants and from conservative politicians, including J.D. Vance, a Republican contender for the U.S. Senate who has called for taxing the large endowmentsrn of Harvard University and the Ford Foundation

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While 82 percent of those polled said foundations play an important role in society, about the same percentage of Americans disapprove of the tax breaks wealthy people receive to start foundations that operate forever and give money slowly over a longrn period.

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The poll could go a long way toward drumming up support for a bill that is languishing on Capitol Hill that would require philanthropic funds to make grants to charity at a higher rate. But since there is relatively little data on public sentiment onrn philanthropic payout, the survey fills a void on a topic that took new significance this week when Bill Gates put $20 billion into the Bill & Melinda Gates Foundation and urged fellow billionairesrn to send more of their wealth to philanthropy to deal with immediate crises like climate change and the pandemic.

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Legislation called the Accelerating Charitable Efforts Act hasrn been introduced in both the House and the Senate that includes an incentive to boost their annual payout from the 5 percent minimum required by federal law to 7 percent.

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Donors who choose to make gifts through donor-advised funds, a rapidly growing form of charitable giving, would get an immediate tax benefit only if they committed to give that money to an operating charity within 15 years. Alternatively, a donor couldrn elect to create a fund with a 50-year time limit. In that case, the donor would receive estate-tax and capital-gains tax benefits at the time of the contribution but would not be eligible to file for an income-tax deduction until the money is actuallyrn given to charities.

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Not in the Public Eye

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The public has little knowledge of the arguments that have raged in philanthropy circles over the share of assets foundations should distribute annually, said Chuck Collins, director of the Institute for Policy Studies Inequality and the Common Good program.rn But the more people heard from pollsters about how much donors and foundations are required to provide to charities out of their endowments and donor-advised funds, the more they saw a need for change, he said.

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“Whether it is a private foundation doing it for generations or a [donor-advised fund], the idea that you get a tax break but then sit on the money doesn’t pass the common-sense test,” he said.

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More than 80 percent of people who identified as “very left” either strongly or somewhat agreed with the statement “U.S. taxpayers shouldn’t have to subsidize billionaires/wealthy Americans who wish to create permanent legacy foundations to give donationsrn to charities of their choosing.” On the other side of the political spectrum, 73 percent of those who identified as “very right” agreed with the statement.

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Over all, 70 percent said foundations and donor-advised funds should direct 10 percent of their assets to charities each year. While support was stronger among liberals, majorities of people identifying as conservative or Republican and “very right” supportedrn those policy proposals.

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Half of those surveyed said they would support a requirement that donors empty their donor-advised fund accounts within two years of making a contribution — a far stricter requirement than the provisions of the Accelerating Charitable Efforts Act. Thern online survey of 1,005 people was conducted by public-opinion polling firm Ipsos and has a margin of error of 3.5 percentage points.

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Collins suggested that people of all political persuasions are increasingly seeing charitable giving as a way private organizations and individuals use their wealth to short-circuit the public-policy process. While the poll did not ask about this issue,rn he says that lobbying by philanthropy organizations to protect current policy could backfire because the more that charitable giving is seen as a “protected class of activity without public accountability, the more that populist pushback is goingrn to emerge.”

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Any effort to paint foundations and donor-advised fund holders as hoarding their wealth doesn’t reflect the generosity demonstrated by philanthropy during the pandemic, some philanthropy advocates say. Nor, they say, is itrn accurate to depict donor-advised funds as places where the super-rich warehouse their philanthropic contributions. Donor-advised fund accounts had an average of $159,000 in them in 2020, according to the latest survey by the National Philanthropic Trust, which managesrn the funds.

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Attempts to make philanthropic funds distribute money more rapidly or to weaken the tax incentive to give could stifle charitable giving, say philanthropy leaders that represent those groups. While people give for a variety of reasons, said Kathleen Enright,rn president of the Council on Foundations, the ability to deduct gifts from their tax bill is key.

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A group of foundation executives gathered by the council came up with a set of policies thatrn would add some restrictions and reporting requirements for donor-advised funds at community foundations that are not as stringent as the legislation currently being considered by Congress.

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If foundations were required to significantly increase the minimum percentage of their assets that they must direct to charity annually, their investment gains would not be able to cover the increased costs, Enright said. She said policies that requirern a bigger share of assets to be distributed every year would erode foundation endowments over time, and philanthropies designed to last in perpetuity would be forced to shut their doors.

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Foundation longevity is a plus, Enright said, because they “outlast societal fads.”

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“When companies are driven by quarterly profits, and when elected officials are worried about being voted out of office, foundations can look in the very long term about what’s in the best interests of their charitable missions and the people in theirrn communities,” she said.

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Enright said the tax incentive for charitable giving results in a stronger network of nonprofits working for societal good. Rather than eliminate an incentive for people to donate, Enright suggested lawmakers look to raise more revenue in other ways,rn including raising taxes on the wealthy.

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“These are the billionaires who choose to use part of their largess to make the world a better place,” she said, referring to rich people who receive take a tax deduction for charitable gifts. “But there are billionaires who do not give philanthropically.rn So if you’re attempting to ensure that billionaires are paying their fair share, why don’t you look at the portion of their wealth that is not already dedicated to the social good?”

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The Accelerating Charitable Efforts Act has drawn significant opposition from organizations that sponsor donor-advised funds. They say that if organizations that manage donor-advised funds are required to keep a tally of payout at the fund level in orderrn to determine the tax treatment of the donor, it would place a huge burden on both the donors and the fund sponsors to keep track of gifts, said Stephan Kline, associate vice president for public policy at the Jewish Federations of North America. Therern are nearly 90 federations and Jewish community foundations in the group’s network that manage donor-advised funds.

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Like Enright, Kline had not seen the results of the poll.

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New regulations could cause donor-advised funds to lose one of their key appeals, he said: that donors can give and get an immediate tax deduction very easily, while taking the time they may need to decide where to parcel out the donations.

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Since it was introduced in the Senate in June 2021, the legislation designed to boost payout has not gone anywhere, and only a handful of lawmakers support it or a corresponding bill in the House. Kline sees the lack of movement as an indicationrn that there is little public support for big changes.

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“They’ve made no headway in a year, he said. “If this stuff had wings, one would think that it would be getting scores and scores of sponsors.”

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Collins, of the Institute for Policy Studies, is convinced lawmakers can be persuaded if their constituents express their opinion. He hopes the survey can be a counterweight to the “powerful groups lobbying for the status quo.”

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Efforts to get rich donors to move more money to charity have yet to succeed legislatively, but Collins is confident that voters can apply pressure to make changes. While many have assumed that foundations should exist forever and receive a tax benefit,rn Collins said that when they are informed about the practices of philanthropy, people take a dim view.

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“The more they learn about the system, the less happy they are about it,” he said.” There’s an appetite for bolder reform.”

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