If Congress could pump $200 billion into the economy at this time of unprecedented crisis without using a dime of taxpayer money, what politician of any party could resist?
The funding would come from the tens of thousands of foundations set up by the wealthiest families in America: giant vaults of money they created to eventually be donated to charities.
The key word there is “eventually.” These giant vaults — private foundations — can literally last forever. No matter how huge or urgent the crisis, whether it's a health pandemic, an economic collapse or a climate catastrophe, under federal law, they never need to spend more than five cents on the dollar in any given year. And the vast majority of American foundations do just that, even though 5% of their endowment is typically considerably less than they gain from investing the rest of their assets in the stock market. As a result, they actually manage not only to live in perpetuity, but to grow larger, too.
To paraphrase a parable I once read, suppose a deadly famine was sweeping the land, and you had 100 tons of food. Would it be morally right to give away only 5%, hoarding the other 95% or 95 tons for generations yet unborn as today’s children shrivel and die of starvation?
The same question must be asked of philanthropy.
Double the mandate to 10%
This year especially, with foundations assets shriveling in the stock market, those that hew strictly to the 5% mandate will dramatically cut their grant-making. And charities will suffer. They will be forced to cut budgets, lay off staff and cut back on the valued public services they provide.
The solution is simple. Change the federal tax law that currently requires foundations to pay out only 5%. Double it to 10%. Many foundations will resist mightily, so Congress could perhaps do it in a way that doesn’t necessarily jeopardize their cherished perpetuity. Make it temporary — say, three years — to reflect the emergency we’re in, to allow for full deployment of a vaccine, and to provide a reasonable period for economic recovery.
While we’re at it, let’s do the same for smaller personal foundations — called Donor Advised Funds, or DAFs — which amazingly have no payout mandate at all. The wealthy donor can take a charitable tax deduction immediately, but not a single dollar needs to flow through to nonprofit organizations for years, or even decades.
We’re talking some serious money here. There are 86,000 private charitable foundations, with about $890 billion in assets. Every added percentage point of payout would generate $12.6 billion in added foundation spending each year, according to the Institute for Policy Studies. Thus, if the 5% mandate were doubled to 10%, it would inject roughly $190 billion into public-service organizations over three years.
There’s another $120 billion in America’s 728,000 DAFs. Temporarily forcing them to spend 10% might inject tens of billions more into the nonprofit economy. And the tax law should be changed so that wealthy people can no longer take a tax deduction when they deposit money into a DAF, but only when the money actually reaches a charitable organization.
Polite requests aren't enough
Though most foundations stick closely to the 5% minimum requirement, others do give more — and some have committed to such high rates that they spend themselves out of existence in a decade or two, such as the once-huge Atlantic Philanthropies. Our foundation, the Wallace Global Fund, is stepping up its spending to 20% this year, to confront unprecedented and pressing crises. And we have called on other foundations to voluntarily do the same.
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But the time for polite requests is passed. Only Congress has the power to force this massive injection of wealthy people’s money into jobs and nonprofit charitable organizations working in vital areas like health care, food banks, poverty alleviation, education, social justice, and economic development and job creation.
It is endlessly said that we are all in this together. The wealthy donors who created these foundations and DAFs have already reaped vast taxpayer subsidies for their future generosity. But we are in the crisis of our lifetimes. Let’s speed up some of that generosity, right now.
Attorney Scott Wallace is the grandson of Henry A. Wallace, the 33rd vice president of the United States, and co-chair of The Wallace Global Fund. He was the 2018 Democratic nominee for Congress in Pennsylvania’s First Congressional District. Follow him on Twitter: @ScottWallacePA