[Linked article might be behind a paywall. Sorry.]
I just read a New York Times article titled How Long Should It Take to Give Away Millions? Subtitle:
The promise of philanthropy was that the wealthy could enjoy tax breaks for their charitable contributions. The pandemic laid bare how accumulation can trump getting money to those in need. A Senate bill aims to change that.
[Boldface emphases in quotes will be mine throughout this post.]
It seems that a coalition of stakeholders including policymakers, advocacy groups, and some billionaires essentially has for a while objected to the idea of 'giving later'. For instance, they want to increase per-year spending requirements for foundations, regulate donor-advised funds (DAFs), and close what they perceive to be various loopholes.
The participants wanted, among other reforms, to ensure that money stashed in donor-advised funds, which had already earned those donors significant tax savings, ended up in the hands of working charities more quickly.
Last summer, Patriotic Millionaires — a group of about 200 wealthy individuals including the Disney heiress Abigail Disney — joined the left-leaning Institute for Policy Studies in asking Congress to double for the next three years the amount of their assets private foundations are required to pay out, to 10 percent.
Mr. Arnold, Ms. Madoff and others began recruiting support for proposals to regulate donor-advised funds and to curb practices by private foundations like counting salaries and benefits to family members toward their legal payout requirements. In December, the Initiative to Accelerate Charitable Giving was announced, with the support of big names in the field like the Ford Foundation, the Hewlett Foundation and the Kellogg Foundation.
This June, bipartisan legislation along these lines was introduced to Congress, sponsored by senators Angus King (I. - Maine) and Charles E. Grassley (R. - Iowa).
The bill would close a loophole in order to speed giving to working charities: Foundations would no longer be able to meet the 5 percent annual payout requirement by giving to a donor-advised fund where there currently is no payout requirement. The bill also would prohibit foundations from counting the salaries or travel expenses of a donor’s family members toward the 5 percent minimum.
For donor-advised funds, the proposed legislation would require a donor who wanted the full tax benefit right away to ensure that the funds were dispensed within 15 years.
If that is too fast a pace, or if donors are focused on giving over a longer time span, they could take 50 years to pay out. But they would need to wait until then to claim the full tax deduction.
(I don't know the status of this bill.)
I know almost nothing about US tax and nonprofit law. I don't have a good sense of the overall impact it would have on the philanthropy landscape, or on the feasibility of patient philanthropy. In any case it seems clear that the vast majority of giving that might be pushed from later to earlier times was not motivated by EA-style 'giving later' reasons anyway, and that EA-inspired patient philanthropy would at most be a freak casualty.
To be very clear, this means that I don't have a considered view on whether or not this bill would be net good, and what share of the reasoning behind it might be sound.
I found this article interesting primarily from a political communications, issue framing, and agenda setting perspective. In particular, I thought it was interesting that the discussion (at least as represented by this article) is an arguably muddled mix of empirical concerns about unintended tax loopholes, a perceived linkage to the more general issue of wealth inequality, and vaguely moral undertones that amount to brute shorttermist bias, starting with the subtitle lamenting that "accumulation can trump getting money to those in need" (rather than, e.g., asking whether it's worse to get money to those in need in the future as opposed to those in need right now). It doesn't help that the discussion generally blurs "giving later" and "giving never".
a way of ensuring that money promised to charity more quickly gets to the people who need it.
The pandemic laid bare how, with a few exceptions, accumulation trumped distribution.
“There’s an awful lot of charitable money sitting in warehouses that people have taken deductions for but the money has never reached working charities,” said Mr. King. “That’s the fundamental problem that we’re trying to remedy.”
“Some of these funds have accumulated and paid very little out,” Mr. Grassley said, and in those cases “the purpose of the charitable giving deduction is abused.” [!]
“The gap between social need and private philanthropic resources was always big,” said Stanley N. Katz, a philanthropy expert at Princeton, “but it’s huge now.”
But proponents of changing the way DAFs operate say the pandemic revealed how urgent the need for reform is: While the most vulnerable Americans were forced to line up outside food banks, the share prices of publicly traded companies climbed ever higher. Yet the charities and nonprofits that helped care for the children of frontline medical workers and brought clean diapers to the poor were forced to lay off staff.
“Philanthropy is where wealth inequality is playing out in the public realm,” said Ray Madoff, a law professor at Boston College and one of a group of people backing a push to rein in donor-advised funds.
[William A. Schambra, a senior fellow at the Hudson Institute:] “DAFs are an enormous whirlpool sucking that money away from charities into accounts that are institutionally inclined to be reluctant to disburse money.”
Taking a step back, I think this is also interesting as an opportunity for longtermists to contribute to a broader, public conversation. We can imagine a world in which a longtermist public intellectual pens a sharp letter to the editor in response to that article, acknowledging problematic tax loopholes but boldly calling out the implicit discrimination against future people, perhaps even analogizing it to past instances of a, by todays light, too narrow moral circle. Less confrontationally, one could try to drive home the point that it arguably is much more important how - e.g., to what cause - philanthropists give as opposed to when they do so.
It seems that we are usually deliberately foregoing such opportunities, due to strategic uncertainty about the value of different types and speeds of movement growth. (As well as some painful lessons from the early days of EA about the costs of public controversy and advocating for half-baked ideas.) I don't mean to take a stance on these strategic questions here, but I think it's useful to have access to concrete examples of what we could do when considering them.
I'd be interested in thinking about how an EA response could be crafted but I want to point out that there are several key points to be aware of in communicating about this. You did a great job outlining points of tension between supporters of this bill and the patient philanthropy mindset above, but I want to add a few more - particularly given I know a lot of folk who would agree with these points, and so I hope I can frame them more neutrally:
Note that the claims I make above are framed in a way that a supporter of this bill might view them, and do not necessarily reflect my personal opinions.
Again, I would love to see a thoughtful and persuasive way of responding to this but I want us to be very cautious in doing so. I think many of these concerns are driven by short-term thinking, which is worth pointing out, but as someone in the U.S. I am also aware of the pain points and potential backlash.
Short list of how philanthropic/non-profit organizations have responded:
I think the last one, which is from the poverty NGO Global Citizen, is particularly interesting. It goes from asking, "with just under a decade until 2030, it’s important we ask the right questions: are we doing enough to address extreme poverty globally?" to "[American] charities need our help. " Pointing out the US-centric view they have in supporting this bill might be a good start in crafting an EA response.
Also, I tried to find the status of the bill but couldn't either. However, I did find the full text.
While I'm not 100% in agreement with Rob Reich's arguments (author of Just Giving, which argues that US philanthropy threatens democracy), I am interested by his recommended reforms and think an effective EA response would propose some sort of alternative reform. I am certain that US laws around philanthropy could be improved.
By the way, Julia Galef did an episode of Rationally Speaking with him! (As you may be able to tell from this Twitter thread, they didn't really see eye-to-eye.)
Great recent example of my above points: Whose Dollars Are These Anyway? Foundations Rethink Their Model (nextcity.org)
If we were to increase annual percentage of the endowment foundations need to to payout from 5% to 10%, then endowments would be spent down because it exceeds usual investment returns.
I agree that this is a possible outcome (perhaps there would be loopholes in the law, foundations and DAFs would pursue other investment strategies like using leverage to achieve higher returns, or philanthropists would shift funds into alternative non-regulated entities), and if spending down endowments is the outcome, this certainly seems like it would have major ramifications on the entities subject to this regulation.
If these regulations persist in the long-run, I would imagine that patient philanthropy would transition to storing funds in other entities, like corporations, that are not subject to these regulations. Entities like corporations are not tax advantaged, so funding going into those organizations would be fully taxable. Investment gains might be fully or partially taxable (current regulations state that C Corps can only write off 25% of their total income for donations). A C Corp could switch to directly paying for products/services to avoid the limit of write-offs, or make those "purchases" through other entities like charities, so there would probably be ways to make the investment income non-taxable. Either way, the primary mechanism of impact for patient philanthropy—the effect of compounding interest over many years—would be preserved even if regulation to increase disbursements perpetually into the future were to pass.
There are now questions on Metaculus about whether this will pass:
I also know almost nothing about US tax law. Call me a cynic but it seems plausible that lots (nearly all?) of the people putting their money into foundations and not spending it are doing so for tax reasons, rather than because they have a sincere concern for the longterm future.
As a communications point, this does make me wonder if longtermist philanthropists who hypothetical campaigned for such a 'loophole' to remain open will, by extension, be seen as unscrupulous tax dodgers.
(These are my personal views, not Founders Pledge's.)
I'm out of my depth here too, but there are rules around what DAFs can and can't grant to. My understanding is that once the money is in the DAF, it is committed to the charitable sector at some point.
The DAF-critical people in the NYT article are assuming that it's better to donate money now than in the future. That could be wrong even for people who aren't longtermists, like if you think we're learning more about how to best have an impact in the animal welfare or development space over time. For the Investing to Give report FP surveyed grantmakers from multiple worldviews about how they expected the cost-effectiveness of the best giving opportunities in their field to change over time. Most expected there to be better opportunities in the future (see section 2.5 of the full report).
As a community that has thought quite a bit about the timing of donations, I do think we have something to contribute to this conversation. I also recognize the communications risks. But doubling the disbursement requirements for private foundations seems like it could have serious implications for EA giving. I'd at least be interested in seeing somebody think through whether those implications are serious enough that it's worth getting involved.
I know you were explicit about these being your views and not Founders Pledge's, but is there anyone better placed to think through those implications than Founders Pledge? And similarly, it seems like Founders Pledge would be one of the most natural organisations to advocate against limits on patient philanthropy, given the work on the long-term investment fund.
I'm not totally across this debate, but I think that the issue may be with 'perpetual' trusts, which are intended to live (and grow) forever. This is very different from a longtermist investment, which would presumably always have a vesting date, or a trigger, at which point the funds would be paid out towards worthwhile projects/causes.
I am simultaneously sympathetic towards long-term investment and future giving, where this is done deliberately, and sympathetic to the criticism of perpetual trusts which just grow and grow without ever delivering the full benefits of that compounding growth to society.