Private foundations can increase their giving by billions of dollars and still stay in business, concludes a study released last week that gives a boost to proposed legislation on the subject.
“Helping Charities, Sustaining Foundations: Reasonable Tax Reform Would Aid America’s Charities, Preserve Foundation Perpetuity, and Enhance Foundation Effectiveness and Efficiency” is available from the National Committee for Responsive Philanthropy. (Requires Adobe’s Acrobat Reader.)
The findings of the National Committee for Responsive Philanthropy, a Washington-based foundation-watchdog group, support a measure that would require philanthropies to up their annual giving, a move that others say could spell the end for some foundations.
Currently, private foundations— including many that support education-related nonprofit organizations—are required by law to donate 5 percent of their total assets each year to charities to retain tax- exempt status. But in tallying that distribution, they are allowed to include administrative costs.
The proposed Charitable Giving Act of 2003, introduced in the House last month, would no longer allow such costs to count toward foundations’ charitable-giving totals. Sponsored by Rep. Roy Blunt, R-Mo., the bill has not been the subject of hearings, nor has a companion measure been introduced in the Senate.
Such a change would infuse an additional $2 billion to $4.3 billion annually into the country’s nonprofit sector, including groups that support K-12 education. In 2002, giving by U.S. foundations totaled approximately $30 billion, according to the New York City-based Foundation Center.
“Research shows that this is a modest and reasonable tax reform that would help charities with billions of dollars in new grants, while still sustaining foundations in the long term and encouraging foundation efficiency,” said Sloan C. Wiesen, a spokesman for the responsive-philanthropy group.
Many foundations are currently experiencing declines in their endowments. (“Foundation Assets, Giving Wither in Wake of the Stock Market Swoon,” Nov. 6, 2002.)
According to the Council on Foundations, a Washington-based membership organization, a foundation must earn at least 8 percent on its investments in order to dole out 5 percent of its assets each year. Those that do not make that much of a return “will eventually spend themselves out of existence,” according to the group.