With the recession sparking greater human need, grant makers should do more than simply give the 5 percent of assets they are required to distribute by law, writes Ken Goldstein on his Nonprofit Consultant Blog.
The current proposal in Congress to collapse the two-tiered excise tax system into one flat rate, he writes, should not be a factor in foundations’ decision to open up their purse strings during hard times.
The excise tax, which grant makers pay on their investment earnings, is usually a 2-percent levy, Mr. Goldstein notes. However, during a year when a foundation gives charities more than its five-year average, it is lowered to 1 percent.
“This was meant to be an incentive for higher payouts in times of need,” Mr. Goldstein writes. However, because this is only intended as a one-year incentive for higher payouts, “the tax rate goes back to 2 percent unless grant amounts continue to rise each year,” he says. “The return to 2 percent according to some in the foundation world, actually then becomes a disincentive to increasing grants in the first place.”
A new proposal by three Democrat senators — Charles E. Schumer, of New York, and and Carl Levin and Debbie Stabenow, both of Michigan — would scrap the current two-tiered system, replacing it with a single excise tax rate of 1.32 percent.
Mr. Goldstein quotes Robert S. Collier, chief executive of the Council of Michigan Foundations, as saying he believes this change would help spur increasing giving by simplifying the process. Smaller grant makers, Mr. Collier said, would find the process “much easier because they won’t have to spend a lot of time with their accountants trying to figure out if they have to pay 1 percent or 2 percent.”
All of this makes Mr. Goldstein skeptical: “Are foundations really saying that the only reason they can’t step up and grant out more in this fiscal emergency is because they’ll only save on one year’s taxes?”
He concludes, “Now, I’m not saying that I’m against Schumer’s bill. It’s probably a great idea. I’m just saying that certain foundations need to increase their giving in an emergency, excise tax or not.”
