Responding to Concerns about the Emergency Charity Stimulus Proposal

Few people welcome change when they benefit from the status quo. So it’s not surprising that players within the philanthropic community would raise concerns about a proposal to change how much they are required to take out of their warehouses and give directly to charities.

On the other hand, during a pandemic that has decimated the non-profit sector – and will likely continue to drain resources for another two years at least – such concerns might be best keep to oneself. After all, the point of philanthropic funds is to support charities, not to save the funds for the next generation or to provide management fees to companies that manage the warehouses where some $1.2 trillion of charitable donations are sitting today. Plus, the people who set aside those funds have already received a tax deduction, so why shouldn’t charities get the funds right away?

But when people actually give voice to concerns that seem silly at best or selfish and greedy at worst … well, sarcasm often seems the appropriate response.

In this case, the proposal for an emergency charity stimulus would have Congress mandate an increase in foundation payout from 5 percent to 10 percent each year for three years. What’s wrong with that, you might ask. Well, dear reader, here’s when you might be surprised.  See many of these concerns raised in a widely circulated Associated Press story.

Concern: An Emergency Charity Stimulus will take money away from future needs. Spending more now means spending less in the future.

Response: Perfect – let’s keep hoarding it. If donors are waiting for a rainy day, we believe it is pouring now. In 20 years, there could possibly be a crisis almost as bad as this one – at which point they could make exactly the same argument.

Concern: “It’s really a solution in search of a problem.”

Response: The loss of nearly 1 million nonprofit jobs in the pandemic isn’t a problem?

Concern: Nonprofit groups will be challenged by ebbs and flows. As one critic put it, “it’s hard for a lot of groups to handle sudden surges of money, then a pullback. It’s hard to run an organization like that.”

Response: That’s what happens in an emergency! And nonprofits are well used to on again, off again funding roller coasters: that’s what happens now.

Concern: Won’t it create weird incentives? This won’t accelerate giving at all. In fact, some foundations who are already giving more might REDUCE their spending, viewing the 10% minimum as an unshakeable target number.

Response: We’re confused; didn’t you just say this would actually cause a sudden surge of money that nonprofits would find hard to handle because it’s only temporary?

Concern: Shouldn’t we instead give incentives for increasing payout? We should add a sweetener, like lower excise taxes on foundations, or bigger tax deductions for donations.

Response: Why do wealthy givers need even more incentives? They already get big tax breaks when they put money into private foundations and donor-advised funds (DAFs). We taxpayers give the wealthiest donors a subsidy of up to 74 cents for each dollar they give when we lower their income, capital gains, and estate taxes in exchange for their donations.

Concern: Didn’t donor-advised funds (DAFs) give out more last year than any previous year? Fidelity Charitable, the largest DAF sponsor, says its grants jumped by 24%, to $9.1 billion in 2020.

Response: Great! But Fidelity also took in $14.4 billion in new contributions, $5 billion more than they gave out in grants! So instead of opening up their warehouses during the pandemic they actually stashed more away, adding to their stockpiles of over $30 billion (that was their reported assets in June of 2019; they won’t say what current assets are).

Concern: This impinges on donor choice. Government shouldn’t tell charitable givers what to do.

Response: Donors can choose to write any checks to any groups they want. But if they want those gifts to be subsidized through tax deductions, they need to play by the rules Congress sets.

Concern: Complying with these regulations will impose undue burdens on community foundations and other DAF sponsors.

Response: This is the standard response any industry makes about regulations. They market themselves as sophisticated stewards of charitable investments – we’re confident they can figure it out.

Concern: The philanthropic and nonprofit sector are divided over this matter. As one national charity leader put it, “Members of Congress have nothing to gain by passing legislation in any sector, including the nonprofit sector, that the sector is divided on.”

Response:  Right. Congress shouldn’t do anything unless everyone agrees.

But seriously: While ham-handed objections from the stewards of American philanthropy might deserve sarcasm, there’s nothing funny about the needs of charities in the wake of the pandemic. The stock market is once again at record highs. Foundation and DAF asset values have more than recovered. But far too many nonprofits, like the vulnerable communities they serve, will feel the aftereffects for much, much longer. Let’s all pull together to help charitable dollars move out of the burgeoning warehouses and into the charities that need them. Now.