Sens. Angus KingAngus KingRep. Tim Ryan becomes latest COVID-19 breakthrough case in Congress Senate backers of new voting rights bill push for swift passage Stacey Abrams backs Senate Democrats' voting rights compromise MORE (I-Maine) and Charles GrassleyChuck GrassleyBiden confronts sinking poll numbers Congress needs to push for more accountability in gymnasts' tragic sex abuse Franken targets senators from both parties in new comedy tour MORE (R-Iowa) recently introduced a bill called the “Accelerate Charitable Efforts Act.” The problem is, the measure would have the opposite effect.
Among many concerns the charitable sector has with the legislation, there are three major threats to charitable givers and those in our communities that they serve.
First, the bill appears to vilify donor-advised funds, or DAFs, which are personal charitable giving accounts. Anyone can open a DAF, often with low or no minimums, and every dollar a donor puts into a DAF is immediately and irrevocably dedicated to charitable giving. These giving vehicles are a good way to commit to giving while having more time to think through strategic gifts or to allow funds to grow and appreciate for a larger ultimate donation to a charity. Without the overhead costs of starting a private foundation, DAFs make giving easy, accessible, and open to everyone.
Yet, the Senate bill would handcuff DAF donors by requiring that all funds be paid out within 15 years, or 50 years if a donor is willing to delay claiming a tax deduction for their gifts. Those that do not pay out within this arbitrary timeline would face a 50 percent tax on the charitable funds. In other words, the government would dictate when you must give your funds to charity, or it will take half of those dedicated charitable resources. Donors would lose the ability to save and grow their gifts over time, and charities would receive smaller gifts than might otherwise be the case.
The second major flaw in the bill would be new rules against anonymous charitable gifts. Donor privacy would be threatened by forcing private foundations to disclose their DAF gifts in detail, as well as disallowing anonymous contributions of non-cash assets to DAFs. Such forced disclosure of some donations and the intent behind them may threaten the safety and well-being of donors, as well as chill charitable giving overall.
We live in a highly divisive culture in which donors to controversial causes may be wary of donating publicly to charities they support, for fear of facing threats and harassment for their views. But donors may seek to give privately for other valid reasons — such as religious beliefs, out of a sense of modesty, or to avoid unwanted attention and solicitations. Those interested in their privacy may be less likely to give if the King-Grassley bill is enacted. As the Supreme Court found in its recent Americans for Prosperity Foundation v. Bonta decision, “Each governmental demand for disclosure brings with it an additional risk of chill.”
Finally, the bill would impose new burdens directly on the charities that the senators purport to support. Public charities must show the IRS they receive broad support from donors. The bill would treat all anonymous DAF gifts as coming from one person — even when that is not the case — making it more difficult for charities to meet public charity status under the tax code. More generally, several of the provisions would increase the administrative burden on DAFs, themselves public charities. These overhead costs ultimately would be borne by donors and would divert resources away from helping people.
We all share the goal of incentivizing charitable giving. The King-Grassley legislation runs counter to that goal by handcuffing donors and popular giving vehicles. While this bill is a solution in search of a problem, there are broadly-supported ways that Congress can effectively increase charitable giving. Expanding and extending the above-the-line charitable tax deduction, for example, would encourage donations among taxpayers who don’t itemize their deductions, without imposing punitive regulations on donors.
Yet, rather than seeking input from the charitable sector on the policies that see broad, evidence-based support, the senators have put forward counterproductive restrictions on popular charitable giving vehicles, to the detriment of the very charities their bill seeks to help.
Elizabeth McGuigan is director of policy at Philanthropy Roundtable.