Don't Let Politicians Hinder This Charitable Line of Defense
The image was stark: shiny new baby carriages lining a Polish train station, ready for arriving Ukranian mothers with infants in tow. Troubling as it may be for why the need existed in the first place, it remained an encouraging signal that our humanitarian muscles were being flexed. Alas, as in many disasters (natural or man-made) the needs may be greater in the years ahead, assuming there will even be a Ukraine nation to feel them.
Responding to the present and preparing for future relief is why so many have donor-advised funds (DAFs). Users of these charitable piggy banks have been highly engaged during the past two years of COVID-19-caused mayhem, and many will continue to dip into them to assist the drama unfolding in eastern Europe.
DAFs are a mission-critical charitable tool, especially during times of crisis. Because red tape around these charitable-investment accounts is intentionally limited, they are a quick, effective way to donate to charity. As often happens with a perceived golden goose, however, lawmakers want to limit DAFs, thus tarnishing a rich history of laying charitable golden eggs.
Congress has introduced the Accelerating Charitable Efforts (“ACE”) Act. If enacted, the bill would impose costly regulations on a unique financial tool at a time when charitable resources need to move quickly, not only to preserve an independent republic and save lives, but to address what comes next.
The ACE proposal would force DAF accountholders to pay out funds now, thus depleting rainy-day charitable dollars for future problems. Many open a DAF because they have a unique financial situation — a received inheritance, a sold business, an unexpected bonus — and take advantage of the tax benefits to set aside charitable capital now that can only be used to benefit a charity later.
This is not “warehouse” money, as DAF detractors argue. Like a farmer saving for fallow seasons, DAFs areas rainy-day funds for everyday givers, with money ready to be deployed when tragedy strikes.
Forcing charity now is exactly the opposite of what the word means. It takes the voluntary and makes it involuntary. Plus, the administrative burden would gum up philanthropic operations and discourage use of the charitable tool. Ultimately, though, the biggest blow would fall on charities that benefit from Americans’ generosity.
Charitable rainy-day funds came in handy mid-pandemic. The National Philanthropic Trust reports a whopping $2.1 billion was distributed from donor-advised funds by the end of June 2020, the close of the fiscal year. This number was a 54% increase over the previous year.
Let’s also not forget the earning power of charity to replicate itself, and the phrase your crazy accountant uncle always reminded you about: compound interest. Funds don’t languish, as some argue, but are often invested for greater impact downstream. As Howard Husock, a senior fellow at the American Enterprise Institute, says, managed funds have a solid return on investment.
“From 2015 to 2019, investments for assets managed by the four largest DAF sponsors—Fidelity Charitable, Vanguard Charitable, Schwab Charitable, and the National Philanthropic Trust—led to returns that made available almost $2.66 billion reserved for future charitable donations.”
Either way, whether a donor lets her fund grow in a money market or puts dollars in a managed fund, DAFs are a win-win for charities, as there is liquid cash ready to send in times of crisis and long-term funds that’ll have greater impact upon arrival at their final destination.
What’s more, Americans are generous. They don’t need a shove from Uncle Sam or out-of-touch lawmakers to prove it. We witnessed this when giving surged six months into the pandemic and continued to jump throughout 2021 despite price shocks and income lagging behind home prices.
The team at the Blackbaud Institute, a nonprofit that tracks charitable contributions, estimates overall giving in 2021 climbed 9 percent over the previous year, outpacing inflation even amid the ongoing pandemic and the market volatility that accompanied government shutdowns.
How remarkable is that? During a year when global food prices climbed 28%, gas nearly doubled and housing costs went through the roof, Americans stepped up to help their local food bank, animal shelter, place of worship and advance critical medical research, to name a few.
At the end of the day, a person’s finances and charitable goals are unique and oftentimes complicated. This is yet another reason lawmakers shouldn’t force the one-size-fits-all ACE Act on philanthropists and slow the movement of charitable resources.
Lawmakers, instead, should pave the way for everyday givers to continue their generosity, not place onerous requirements on a country already giving to charity even when it hurts. It sends the wrong message to philanthropists of every income level and is, quite simply, off-putting.
Private philanthropists step into the breach every day to fill gaps where government fails or has limited authority to act. And, frankly, lawmakers need to get out of the way and let private philanthropists work their magic—baby carriages and all.
Lawson Bader is president and CEO of DonorsTrust, a mission-driven donor-advised-fund provider for conservative- and libertarian-minded givers.
