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Arnold Ventures’ John Arnold: Now is the Time to Reform Charitable Giving Laws

My wife, Laura, and I founded Arnold Ventures to maximize opportunity and minimize injustice. We began our philanthropy to invest in evidence-based solutions to some of the nation’s most pressing challenges. Often, this work is focused on changing systems, which in turn transforms daily life for individuals and communities. However, today our nation’s challenges are more pressing than ever. As we wrestle with the health and economic effects of COVID-19—both of which have exacerbated social inequities, from systemic racism to the worsening hunger crisis—we see an urgent need to increase resources to America’s charities, which provide the direct services individuals and communities are relying on to survive.

As we struggle with these unprecedented times, we must acknowledge and address the gap between the immense resources sitting in philanthropic funding vehicles and the shoestring budgets most charities are currently operating on. Above all, we must ensure philanthropic resources are meeting our communities’ critical needs. One way we can do this is by changing the rules that govern and incentivize philanthropic giving.

The rules governing charitable deductions contribute to harmful inefficiencies in our current tax system and prevent funds from going to those most in need. The time gap between when donors receive their tax deductions for assets placed in private foundations and donor-advised funds (DAFs) and when those assets are actually employed for its philanthropic ends, is too long. Rather than being immediately spent, funds are allowed to accrue. In fact, more than $1 trillion remains sidelined in private foundations and DAFs. This is money that can and should be distributed to charities. The significant upfront tax breaks given to donors who place their money in private foundations and DAFs not only deprive taxpayers of tax revenue, but they operate without rules that assure the sidelined money will eventually be distributed to people in need.

The pandemic has renewed the urgency around closing these tax loopholes and moving resources to where they are needed most. America’s charities are on the frontlines, doing everything from serving meals to families to tackling issues of racial injustice. This is such critical work that the current demand for charitable services has reached unprecedented levels.

To support them, some of our nation’s top philanthropic leaders at the Ford Foundation, Hewlett Foundation, Kresge Foundation, and the W.K. Kellogg Foundation have joined to form the Initiative to Accelerate Charitable Giving. The Initiative to Accelerate Charitable Giving believes America’s philanthropic sector can and should take immediate action to ensure that money given today goes to fix today’s most urgent problems. The Initiative is proposing a handful of common-sense, nonpartisan policy reforms, included changed rules for private foundations and donor-advised funds, and an expansion of the new non-itemizer charitable deduction. Philanthropy and tax policy experts agree all of these changes would make philanthropic giving more efficient and make it easier for funds to reach the hardest-impacted communities. These reforms to the philanthropic sector are long overdue and we need the resources now.