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Posts tagged ‘foundations’

The Right Question: The Wrong Solution

December 29th, 2015

Richard Marker

In a recent op-ed [“It’s Time to Tax Harvard”, Chronicle of Philanthropy, December 2015], Professor Michael Ryan Fricke addresses a legitimate quirk in American philanthropy law. Public charities are permitted to accumulate funds without any spending requirements or tax obligations. He proposes some interesting solutions to an inequity many of us have identified. I applaud his thoughtful suggestions to move the discussions onto the public policy stage.

His example of Harvard is both on target and also a problematic straw-person. It is easy to suggest that the holder of the largest endowment should have both spending and tax obligations. After all, the endowment is built on tax-deductible gifts and the earnings are themselves [on the whole] tax exempt. It is reasonable indeed to posit that there is something wrong with the picture if there is no legal obligation to spend one penny of their earnings on behalf of students or faculty or anything other than making more money.

And if this is true of Harvard or Yale, it is even truer of the massive amounts of money in donor advised funds accumulated and managed by tax-exempt entities established by investment companies such as Fidelity, Vanguard, Schwab, and more. After all, these entities don’t even have the façade of education, health, culture, or social service.

We also need to be fair. Almost all of these universities and museums do spend a respectable percentage of their endowment earnings, and, taken as a whole, the donor advised fund field does spend a respectable portion of their accumulated earnings [even if not every fund does.]

The issue, though, as correctly pointed out, is that they don’t have to. They can accumulate an unlimited amount of earnings tax-free. And all under the guise of “public good.”

Professor Fricke proposes a complex set of conditions, formulas, and ground rules to both encourage spending and to tax excess unspent earnings. In my view, his carefully articulated proposal is too complex and would apply an unfortunate administrative burden on both public charities and the IRS. Rather than examine each one of his suggestions, I would like to propose a much simpler solution: Apply the spending and tax rules of private foundations to endowments of public charities.

These rules are quite well developed and understood, and pending the long expected adjustment to simplify the calculation of the excise tax rate, pretty straightforward to administer. Simply put [and in non-legalese]: A minimum of 5% of the corpus must be spent for the purposes of the foundation. The process of how and when the amount of that corpus is determined must be pre-declared. Certain operating expenses may be applied to that 5%. An excise tax is levied on the earnings of the endowment but not to new contributions or additions to the endowment. [There is more, but this summary should suffice.]

The more consistently we treat monies accumulated for pubic good, the easier and better for all. If one wants to argue that there should be a minimum exemption for smaller endowments for public charities – perhaps – just to pick a number – under $10m, let it apply to private foundations as well as public charities.

Similarly, if it is viewed as a public good to reward spending a higher percentage, let the excise tax be dropped completely at, say, 10% for both private foundations and public charity endowments.

I am not hereby suggesting that private foundations now be treated like public charity endowments and that all of the other unique restrictions on private foundations be dropped. There are good public policy arguments for most of them and they serve to hold these privately controlled funds accountable in ways that the public should care about.

I am though suggesting a new discipline for public charity endowments. If monies are raised and invested for the public good, and tax favored because of that, there should be good reason to know that a defined amount of that money will be spent each year for the public good.

I am sure that one can argue that there might be some remaining inequitability in this simple solution, but I believe that it would be easier to apply, administer, and legislate than the well meaning but needlessly complex approach of Professor Fricke.

Charitable Deductions – the debate continues

March 15th, 2012

Richard Marker

Ah, the wages of sin.  In this case, the sin of over-dosing on networking sites; perusing my “groups” on Linked-In.  I joined a discussion on one of the philanthropy sites after I happened upon a growing group of complaints about the proposed cap on charitable deductions.  The group, if I read their profiles correctly, all seemed to be fundraisers, and they all were different degrees aggrieved at this terrible pending injustice.  They seemed, histrionically to my mind, to anticipate the inevitable discouragement of millions of dollars in charitable giving from those most able to afford it.

I couldn’t help myself so I weighed in on the other side.  It didn’t take long before i was attacked –  but, let it be said, unlike in some other such discourses i have found myself in,  it never descended into the personal.  And I do want to be fair: at a time when the public benefit/non-profit sector has been profoundly challenged from every direction for several years, it doesn’t take much for skittishness to overcome objectivity.  Nevertheless, since the complaints had a hyperbolic tone to them, I think it is important to return the conversation to what any change might really mean:

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Forbes, 9 March 2012

March 11th, 2012

Richard Marker


Rahim Kanani, Contributor
3/09/2012 @ 4:03PM

Philanthropy Expert Richard Marker on What Every Donor Needs to Know

In a recent interview with Richard Marker of NYU’s Academy for Grantmaking and Funder Education, we discussed lessons that every funder must internalize, challenges and opportunities facing today’s donor community, and much more.

Richard Marker is co-principal of Wise Philanthropy™, a firm that includes: Marker Goldsmith Philanthropy AdvisorsThe Wise Philanthropy Institute, and Green Strides Consulting.

Richard Marker, an internationally known expert on philanthropy is the Founder of NYU’s Academy for Grantmaking and Funder Education. The Academy is the oldest and most comprehensive university program teaching funders and philanthropists in the United States. In February 2007, he was recognized with the NYU Excellence in Teaching Award.

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Is your business impacted by the economic roller coaster?

August 24th, 2011

Richard Marker

Not since 2008 have we heard this question so often. Sometimes it is asked out of simple curiosity, sometimes out of presumed sympathy for what some assume must be a difficult time, and sometimes it is asked as a way to anticipate what the funder community might be thinking. Is our business, the business of advising foundations, funders, and families on their philanthropy strategies, impacted at this time?

The short answer is no. But since the question is asked so frequently, it clearly deserves a longer answer.
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