Article Financial Times

FT’s Stephen Foley: America’s tax breaks for charitable giving could be better spent

In an opinion piece, Stephen Foley, Deputy US News Editor of the Financial Times, explored the impact of providing tax breaks for giving to “financial intermediaries” and what that means for giving to operating charities. He writes:

“A survey of US non-profits suggests they squeezed out a 2 per cent rise in funding in 2020 — a year when food banks were overwhelmed and the problems of racial injustice were laid bare. A year after the pandemic hit, employment at charities and other non-profits in the US was down 7 per cent, according to Johns Hopkins University data.

Yet the money bottled up by financial intermediaries surged in 2020. Assets held by private foundations passed the $1tn mark, up 7 per cent, while DAFs — philanthropic investment accounts from the likes of Fidelity and Vanguard — probably grew even faster, given that they had been rising so rapidly in previous years…In both cases, the donor banks the tax break immediately. In effect, they have written an IOU to US society.

At least foundations have to distribute a modest 5 per cent of their assets each year; DAFs have no payout requirement at all, despite the even more generous tax benefits that underpin their explosive growth. Contributions to these vehicles appear to be growing at twice the rate of donations to operating charities.”

Arnold Ventures Co-Founder and IACG member John Arnold tells Stephen Foley:

“My message is, the charitable act is actually distributing the money from the DAF into the community and that’s what the tax code should reward.”

Arnold also highlights why it’s important to modernize the tax rules around DAFs sooner than later:

“Look at investing in low-socioeconomic [status] neighbourhoods that are trapped in poverty. If you invest today, you might have very beneficial long-term effects. If you don’t, the problems compound on themselves. It’s cheaper to do it today than to wait till tomorrow.”

Read the full opinion piece here.