Are we looking at a death tax on charitable giving? Here's hoping Congress steers clear

This is the time of year when Americans turn to charitable giving because of both the holiday season and the end-of-year tax deduction deadline.

It’s especially true in 2020, when we’ve seen individuals and philanthropy rising to meet the needs of newly struggling Americans since the beginning of the coronavirus pandemic.

It’s part of what makes America great and exceptional. America is more charitable, dollar for dollar, than any other country. But now a group of billionaires and some of the country's largest foundations, think it’s their job to tell smaller donors how and when they should give to charity. And they want Congress to enforce their rules—making it harder for many Americans to give to their communities and causes they believe in.

We should be making it easier for people to support those in need right now, not more complicated.

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It’s no surprise that these new rules would have little impact on the groups promoting them, for example, the Ford, Kresge, Hewlett, and Kellogg foundations have billions of dollars that will allow them to live on seemingly forever.

One of the chief concerns of this super-wealthy coalition, and its “Initiative to Accelerate Charitable Giving,” is that hundreds of thousands of small donors using individual charity spending accounts—also called donor-advised funds (DAFs)—need to “accelerate” their giving. By proposing that Congress should enact unnecessary and arbitrary regulations on charitable giving, the coalition's plan would force small donors to spend the funds in those charity accounts within 15 years—or forfeit their charitable tax deduction.

The plan is the brainchild of former hedge fund manager and founder of Arnold Ventures, John Arnold, and Ray Madoff, a Boston College law professor and director of its Forum on Philanthropy and the Public Good. While spending philanthropic money more quickly might sound like a good idea right now, there is no evidence making a smaller donation today is more helpful than making a bigger donation tomorrow.

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Imposing a 15-year limit would amount to a death tax on charity as increased regulations on charitable giving will reduce the amount of dollars available to organizations that are serving the long-term needs of our communities.

It’s not clear why Professor Madoff believes that hundreds of thousands of Americans—who are proactively setting aside their earnings for charities—would claim a charitable tax deduction but never give the funds to charity.  “The public,” she claims “has no assurance of getting any benefit from this money.”

The problem is: that’s simply not true. These so-called donor-advised funds can be used for one purpose alone: to support charitable organizations. And a big benefit of these accounts—for both the donor and the recipients—is that a greater impact can be made since the accounts make it possible to put money aside now, allowing the funds to grow for charitable giving later.

While some are concerned that donors who use DAFs will sit on these dollars over an extended period of time, there is no evidence of this happening.

In fact, a University of Pennsylvania study found that these donors actually increase their charitable giving in times of crisis.

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According to Fidelity Charitable, which helps people manage their DAF accounts, their donors support the American Cancer Society, St. Jude Children’s Research Hospital, Doctors Without Borders, and scores of their own churches and schools. While Fidelity reports that three-quarters of grants are made by their donors within five years, some donors need more time to weigh their choices and work with organizations that they care about.

Over time, this allows them to give even more toward those charitable groups’ long-term needs. The accounts even enable one to pass the funds along to children, ensuring a family tradition of charitable giving even after one is gone.

By forcing smaller donors to pay up now or face the consequences, the coalition has devised a plan that is “okay for thee for not for me.”

These mega-foundations have no plans to spend down their vast assets—or sunset—anytime soon. Ford controls some $13.2 billion; Hewlett, $11 billion; Kellogg, $7.8 billon; Kresge, $3.8 billion; and Arnold, $2.3 billion. For comparison, the average DAF account holds about $168,000 in total. And yet these accounts are the target of those who have a combined $38 billion dollars at their disposal.

Whether we call them charitable giving accounts or donor-advised funds, they are a flexible, low-cost tool that has allowed the democratization of foundations, providing little guys a way to have a bigger impact through their philanthropic work.

You don’t have to be a millionaire to open one of these accounts—and some don’t even have a minimum deposit requirement anymore.

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If we learned one lesson from 2020, it’s how quickly and effectively philanthropy can partner with nonprofits and community volunteers to pick up the slack and make a difference in a time of great need, especially as government dragged its feet.

We should be expanding opportunities for more people to give and get involved—not limiting them.

The last thing we need is for Congress to get in the way of what has been successful—philanthropy’s efforts. Instead of more regulations, we should take every opportunity to support and reinforce America’s great tradition of charitable giving.

Howard Husock is the executive senior fellow at The Philanthropy Roundtable and the author of “Who Killed Civil Society?”