The pandemic and a “rainy days fund” for American charity

The emergence and financial support of effective charitable work is among the most encouraging elements of the US response to the COVID-19 pandemic. One of the best examples was New York’s Invisible Hands, a group created by three young people in their twenties that mobilized thousands of volunteers to deliver groceries to the poor and homebound. He quickly found financial support from a charitable foundation, Robin Hood of New York, and was granted tax-exempt status to solicit individual contributions. (The group owes more to Adam smithDavid (Adam) Adam SmithOvernight Defense & National Security – Brought to you by AM General – The Quad confab The Hill’s Morning Report – Presented by Alibaba – Democrats discuss price ahead of politics amid rush House passes sweeping bill on defense policy PLUSof the “theory of moral sentiments” than of “the wealth of nations”. )

Lessons from such a story, and others across the country, include the fact that the necessary charitable funds were available in the first place. Foundations and private charitable accounts such as Donor Advised Funds (DAFs) serve as reservoirs of charitable wealth – available to respond to crises.

The fact that such funds are pouring in now, just as we should hope, makes it all the more curious and unhappy to see an effort underway to undermine the fastest growing custom of charitable giving in the United States – and to make it less likely that charitable funds are available in times of crisis, which by its nature cannot be anticipated.

Led by hedge fund billionaire John Arnold of Arnold Ventures and Ray Madoff, a faculty member at Boston College Law School, the Accelerate Charitable Giving plan urges Congress to require funds deposited into individual charitable accounts Tax-exempt funds, known as donor-advised funds, are subject to a time limit for full distribution, or lose the charitable tax deduction for their contributions. The idea ignores the fact that not only do these accounts already disburse a large percentage of their assets but, more importantly, they have a history of increasing their grants during crises. They are, in fact, America’s charitable “rainy day fund” – and should be protected.

A little history is important here. Donor-advised funds, as a way to set aside and distribute charitable dollars, have grown in popularity over the past 15 years. These individual accounts, like IRAs, allow Americans to set aside tax-exempt money to spend over time, even as the value of the funds increases before donors decide how they should be. used. Some critics fear that the ability to slowly disburse these funds, as well as the ease they offer to convert non-cash assets into a tax-deductible charitable contribution, will make CFOs some sort of tax loophole – despite the fact that such contributions can only be used for charitable donations now or later.

DAF’s growth has been strong and its impact significant. According to the National Philanthropic Trust, the number of such individual charitable accounts increased from 241,000 in 2014 to 728,000 in 2018. Donations from CFOs were only $ 7.6 billion in 2007; it more than tripled to $ 23 billion in 2018, even as overall charitable giving only increased by about a fifth. The potential is there for much more; the financial assets set aside in these accounts have grown from $ 70 billion to $ 121 billion. Under tax law, these funds cannot revert to the donor – they are reserved for charitable donations. They constitute a charitable endowment for America.

The incentive to insist that donors agree to transfer all their contributions within a specified period – 15 years – should be seen as a solution to a problem that does not really exist.

Donors who place funds in individual charitable accounts generally tend to disburse them quickly. A study from the University of Pennsylvania found that about 85% of funds deposited into these accounts come out in the same year.

Significantly – and that’s what I mean by calling them “rainy day funds” – this rate increases during tough times. The same study found that in response to the Great Recession of 2008, more funds came out of DAF accounts than they did. Throughput increased to 103 percent. Funds set aside for emergencies have been mobilized.

We won’t know if the same is true for the COVID-19 pandemic, but there are indications that it will. Fidelity Charitable, a DAF sponsoring organization that has grown to become the largest charitable entity in the United States, reports that a survey of its account holders indicates that 79% plan to maintain or increase their giving in 2020, of which 25% plan to increase them. It is of course too early to say whether this will translate into a more real disbursement of funds.

The proposed deadline would put all of that in jeopardy.

There is no doubt that 15 years is a long time – and those considering setting up a donor-advised fund may not be put off by such a delay. But the added complication may well prevent charitable giving in states where DAF accounts seem most popular. According to the National Philanthropic Trust, these include California, Ohio, Indiana, Ohio, New York, Texas, Michigan, and Florida. The numbers are staggering: California alone has more than 88 organizations that “sponsor” (manage) donor-advised accounts; Florida has 44 and Texas 40. In 31 states there are at least 15, and often many more.

The costs of managing these accounts would inevitably increase, as “sponsoring organizations” faced the bureaucratic burden of knowing which funds had been deposited when – and whether they had been disbursed on time. Higher management fees would mean less money available for charities. We are thinking here of the Dodd-Frank banking regulation, the costs of which have forced many community banks to close their doors. entrusted money to local foundations to direct them to those who need it most. Even large national organizations sponsoring DAF such as Fidelity, Vanguard, Schwab Charitable and the National Philanthropic Trust would be forced to increase their fees, decreasing the funds available for charitable giving.

The proposal to set a time limit for down payments would hurt donors across the country. Donors with reserve charitable funds during hard times do not limit their giving to their own states. Fidelity Charitable reports that 25% of its donors plan to increase their donations in 2020 due to the COVID-19 pandemic.

Supporters of the proposed changes to DAF rules have clearly failed to take into account the potential effect on donor behavior. History shows that this behavior is positive for America and does not need to be changed.

Howard Husock is the Senior Executive Fellow of The Philanthropy Roundtable and the author of “Who Killed Civil Society?”

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