Mandating an increase of giving from charitable funds, says one advocate, "would move an estimated $200 billion off the sidelines and into front-line working charities without increasing taxes or adding to the deficit."
As billionaires have seen their collective wealth increase by nearly $700 billion and ordinary Americans face increasing economic insecurity amid the Covid-19 pandemic, nonprofits in the U.S. that rely largely on charitable giving—increasingly from a small number of high-dollar donors—are struggling to survive under the current conditions.
According to the Washington Post on Monday, nonprofit leaders are warning that "one-third of organizations may not survive pandemic."
While the rich have continued their philanthropic giving during the Covid-19 crisis, those donations don't always have a direct line to nonprofits.
In op-ed published last week, Chuck Collins, a senior scholar at the Institute for Policy Studies where he co-edits Inequality.org, explains:
Unlike low- and middle-income givers, wealthy donors are more likely to park assets in private foundations and donor-advised funds, slowing its flow to working nonprofits on the ground. Between 2005 and 2019, the number of private foundations grew from 71,097 to 119,791, an increase of 68 percent. Over the same period, their assets grew 118 percent, from $551 billion to $1.2 trillion.
So while the 1% are, in fact, donating portions of their accumulated wealth, they’re giving to intermediary organizations, which slows the distribution of funds to nonprofits actually doing the work on the ground.
In addition, many nonprofits in particular rely on in-person events like galas, golf tournaments, and other functions for the bulk of their funding. Organizations large and small are feeling the effect of social distancing and stay-at-home orders aimed at curbing the spread of Covid-19.
"The cancellation or postponement of such in-person fundraising will deeply affect the way we raise funds," Karen Addington, chief executive of Juvenile Diabetes Resesearch Foundation Ltd (JDRF) in the United Kingdom said in an April press release announcing the furlough of nearly 40 percent of JRDF’s staff.
While nonprofits that focus on social needs like rent assistance, healthcare, and nutrition/food services have seen a bump in donations during the Covid-19 pandemic, the needs of the communities and these groups serve is outpacing the giving.
"The explosion in the need for food, rental assistance and other charity quickly outstripped available resources," reports the Washington Post, noting a local case-in-point. "The Greater Washington Community Foundation, the region’s largest funder, collected more than $8 million starting in March for its Covid-19 Emergency Response Fund — only to see requests for aid exceed $60 million."
In a May letter sent to House Speaker Nancy Pelosi (D-Calif.), Senate Minority Leader Chuck Schumer (D-N.Y.), industry leaders from across the country urged congressional action:
In the midst of global pandemic and economic shutdown, there is no justification for allowing the country's wealthiest dynasties to continue to hoard tax-advantaged funds that have already been designated as charitable contributions in anticipation of some future need, when there are so many urgent needs now. While this change is a deviation from the status quo, it is a modest one. Congress's purpose in incentivizing these foundations and funds with tax deductions in the first place was to support charitable efforts. There has clearly not been a moment in the past fifty years in which the full deployment of our charitable sector was more necessary.
America is in an unprecedented crisis. The world of philanthropy must step up and do more, faster. Congress must insist on it.
Now, as Congress debates the next Covid-19-related stimulus bill, Collins joins a chorus of experts calling for lawmakers to include nonprofits as beneficiaries.
"Congress should implement an Emergency Charity Stimulus — a three-year emergency mandate to require private foundations to double their payout from 5 percent to 10 percent and establish a temporary 10 percent payout requirement for [Donor-Advised Funds] DAFs. This would move an estimated $200 billion off the sidelines and into front-line working charities without increasing taxes or adding to the deficit," he wrote.
The call comes as The Giving Pledge, a movement started by Bill Gates and Warren Buffet that encourages billionaires to give away half of their wealth, nears its 10th anniversary.
"Many Giving Pledge members will fulfill their Pledge by plopping assets into private family foundations controlled by their heirs, possibly in perpetuity," Collins wrote. "Voluntary efforts are insufficient. It is time for Congress to update the rules governing philanthropy to discouraging the warehousing of trillions, increase the flow, and protect the nonprofit sector and the integrity of the tax system from abuses."
To that end, Collins and The Inequality Project propose broad reforms to United States charitable laws:
- Levy a wealth tax on closely held private foundation assets and establish a lifetime cap on charitable deductions.
- Make private foundation payout requirements meaningful and increase the flow of funds to working charities. Eliminate the perpetual private foundation as it is currently constituted.
- Require donor-advised funds to have a payout and increase transparency and reporting.
- Implement a universal giving credit to broaden giving by the non-wealthy.
- Prevent abuses and encourage transparency with reforms requiring board independence, banning compensation of family members, and donor disclosures.
- Create a new federal oversight agency for foundations and charities, funded by foundation excise taxes.
"Just as we don't want an economy that produces billionaires, we don't want a charity sector that creates billionaire-controlled foundations," Collins concluded.