Today, a new bill—the “Accelerating Charitable Efforts (ACE) Act”—was introduced to the House of Representatives by Congresswoman Chellie Pingree (D-Maine) and Congressman Tom Reed (R-New York).

If you’re thinking, “this is an old story. I heard about the ACE Act a year ago,” that is because this is a sister bill to the ACE Act introduced by Senators King and Grassley to the Senate. This new proposal makes the ACE Act both bipartisan and bicameral, giving the bill some extra legs and energy.

Advocates again suggest—correctly—that such a bill would hasten the movement of charitable dollars to the nonprofits they are intended for: unable to linger in DAF accounts, charitable dollars would be forced to go from the DAF to recipient organizations within a limited time frame.

And critics again worry—correctly—that such a bill would disincentivize charitable giving by placing new red tape and restrictions on charitable giving.

Whatever the virtues of reforming charitable tax law, there are some funny features and further questions.

AN INTERESTING EXCEPTION

Both bills as proposed set payout requirements on DAFs. There are two types of DAFs proposed: those to pay out in 15 years, where the tax deduction is taken immediately, and those to pay out in 50 years, where the (income) tax deduction is taken upon payout (capital gains and estate benefits received immediately).

There is an exception to this rule. Community foundations are allowed to hold accounts under $1 million with no payout requirements, and accounts over $1 million would not have any payout terms, but they would be required to distribute 5% per year. This “exemption” is allegedly “to support their place-based, mission-driven work.”

What is strange about this exemption is that it is asserted, without explanation, that it would support their “place-based work.” At first blush, this almost appears like an implicit admission of the Philanthropy Roundtable’s objection to the bill: namely, that such restrictions disincentivize charitable giving. If that’s not the case, then why does eliminating that restriction support their work? Surely another explanation might exist, but I don’t know what it is.

(Curiously, an additional sponsor of the House Bill—Congresswoman Ro Khanna—represents the district that is home to the behemoth Silicon Valley Community Foundation. Although, despite this exemption, community foundations have largely opposed the bill.)

CLARIFYING CONCERNS

What’s more frustrating (though not surprising) is that the two sides supporting and opposing the bill continue to talk past each other. Opponents insist that it is a solution in search of a problem, seeming to fail to admit that there is indeed a problem. Proponents lament the money lying in wait in DAFs, seeming to fail to admit that most money does not lie in wait in DAFs. The majority of that money does move in and out—even as some sits, growing but unused.

It might behoove both parties to patiently understand each position: acknowledge that there is a problem, and then work to identify the problem accurately. And then create a solution responsive to that problem.

For instance, the problem is not, as Congresswoman Khanna, laments the “loopholes in our current laws [that] allow the ultra-wealthy to make contributions and receive immediate tax benefits without any distribution requirements.” There are two problems here. In the first place, the “ultra-wealthy” are not the only people taking advantage of DAFs. DAF benefits are not only available to, but also (increasingly) used by, more modest donors. One might wonder why donors of any level use DAFs—and why DAF use is broadening—but nevertheless, Congresswoman Khanna’s statement is not descriptive of reality (and it is misleading, in criticizing the “ultra-wealthy”).

Beyond that, Khanna’s description of “loopholes” is imprecise.

Opening a DAF, claiming your charitable deduction, and not directing money from the DAF to a nonprofit is not a “loophole.” Why? Because using a DAF to “store money” like this does not skirt anything. That decision is well within normal DAF policy.

Some foundations, on the other hand, use DAFs to hit their 5% disbursement requirement. That use may be a “loophole.” Foundations using DAFs to offload money—rather than give it away—does skirt a specific tax regulation in place. The 5% disbursement requirement is meant to move money from foundations to nonprofits, and using DAFs skirts that requirement. But individuals taking advantage of DAF policy is not skirting a requirement.

THE REAL BREAKDOWN: CHARITY AND TAXES

Ultimately, the shortcoming of the ACE Act(s) and its proponents is their failure to really identify the problem. While they are right to see that there is a problem, they are leaning on regulatory solutions that do not solve the real problem.

A key argument for the bill is that “Giving has become more about the tax benefits to donors and less about people in need.” That’s not an inaccurate description, but it is inadequate.

Donors who actually donate to nonprofits, by and large, do not describe tax deductions as a reason for their support. Whether their giving is filtered through a DAF or made directly to an organization, the reason they are giving is not the tax deduction.

So a claim that “giving” (generally) is not about taxes and not “people in need” is ambiguous at best. Whose giving? Giving to whom? That matters, because giving by engaged donors to real nonprofits is not about taxes. It’s about mission.

At the same time, DAFs are growing—rapidly. Again, most DAF dollars are in and out; the dollars are making their way to nonprofit organizations, and that needs to be acknowledged. Nevertheless, the dollars stored in DAFs is also growing. As Ray Madoff points out, even as the charitable sector has remained around 2% of GDP, the number of dollars in DAFs has grown each year—meaning that many dollars are not making their way from donors to nonprofit organizations.

That phenomenon seems to describe the donors who are (or may be) more interested in tax benefits than helping people in need. In light of that, yes, there are some people interested in tax benefits, not charity. But that is not everyone or nearly everyone.

Moreover, we need to ask whether this group of people has any virtue? The answer is obviously yes: even if their giving fails to be immediately tied or directed to a nonprofit, it is still giving. Even this self-interest of seeking a tax deduction culminates in storing money in a place that must ultimately end up at a nonprofit organization.

WHAT’S THE POINT?

The point is that ACE Act advocates fail to see that most donors—including those using DAFs—are interested in the missions and purposes of the organizations they love. Meanwhile ACE Act opponents fail to admit that too many donors have divorced themselves from the purpose of charitable giving and have developed a love of tax deductions more than charity itself.

That is a unique problem, and tax policy may or may not solve it. But it is certainly the case that tax policy that is not directed at solving that specific problem will not solve that specific problem.

The charitable sector has always been essential to American life, and the past couple of years have brought that to the forefront of our minds. The charitable sector is not “more important than ever”; it has always been essential, and more Americans are seeing that now. And so as we strive the make the charitable sector effective for serving and strengthening communities across the country, we should carefully identify the problems facing charitable giving, and then we should carefully craft the solutions.

And regulation might not do the trick.

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