Requiring foundations to give more to charities has its backers, detractors

NEW YORK — The pandemic wiped out jobs and businesses and left many U.S. families unable to afford food. It also caused a crisis for charities: Too much need, too little funding.

And now it’s sparking debate over a divisive question: Should philanthropic groups donate more money to charities? Should they be forced to?

Ask someone like Chuck Collins, and you’ll get a resounding yes.

Collins, a director of the Institute for Policy Studies, a progressive think tank, thinks the government should compel foundations and donor-advised funds to step up their contributions. Philanthropic groups enjoy taxfavored status, the thinking goes, and many of them have watched their assets multiply from stock market gains and other investments.

“We’re in the middle of an emergency,” Collins said. “The pandemic is a serious thing that we need to do something about right now.”

Collins and others are pushing a proposal for Congress to require foundations and donor-advised funds to contribute at least 10 percent of their investment assets each year for three years.

If passed, it would be the first significant change in laws governing nonprofit funding since the Tax Reform Act of 1969. That law set a rule by which foundations must donate at least 5 percent of their assets annually to maintain their tax-exempt status. Donor-advised funds, which are akin to charitable investment accounts, aren’t now required to make any donations in any one year.

The payoff, advocates say, would be an additional $200 billion for charities that serve families suffering hardships from the pandemic. The proposal has the backing of some leading philanthropists.

“We had no way to envision the level of inequality and concentrated wealth we have now in 1969,” Collins said. “We can do something about that.”

Still, it remains far from clear that his proposal can gain enough political support to make it through Congress. Even within the philanthropy community, some leading figures favor far more modest steps to increase donations. Others prefer to keep the status quo.

Philanthropist John Arnold, co-founder of Arnold Ventures, is skeptical of any government mandate to compel foundations to increase their payouts. Arnold argues that the same goal can be achieved in other ways — for example, by reducing loopholes that let foundations count donations in dubious ways or allow them to consider compensation paid to family members as part of their annual payouts. He also questions the idea of making any government-mandated contribution requirements only temporary.

“It’s a little tricky for groups to double their payout for a limited number of years and then revert back,” Arnold said.

Arnold proposes a more modest solution — the Initiative to Accelerate Charitable Giving. Under this plan, assets in a donor-advised fund would have to be donated within 15 years. Arnold would also add a sweetener: Foundations that donate more than 7 percent of their assets in any year wouldn’t have to pay the excise tax, usually amounting to under 2 percent, that they normally face.

His plan has the support of some of America’s biggest foundations, including the Ford Foundation, the William and Flora Hewlett Foundation and the W.K. Kellogg Foundation.