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In 1929, in the grip of a global depression, Americans flocked to theaters to escape the harshness of their lives and catch a momentary peek at the glittering one percent doing well. F. Scott Fitzgerald’s bleak outlook on the concept, “Let me tell you about the very rich. They are different from you and me. They think, deep in their hearts, that they are better than we are,” did not keep people from enjoying the fantasy life of their favorite celebrities. They lifted spirits in hopes of a better time.
But something in the last 100 years has shifted. Accounts of billionaires using clever schemes to pay a pittance in taxes or eliminate them altogether, while a growing percentage of the world slides further into desperate poverty, hunger, and disease, only reinforces the growing perception that the rich are woefully impoverished in character. The promise of the Giving Pledge has faded, and we are greeted daily with the excesses of the rich having given up any sense of responsibility for the poor.
Instead, the rich are caught up in the thrill of literally leaving the planet and the masses behind them. Partly as a reaction to that – and the sense that the rich are simply stockpiling their wealth in private foundations and donor advised funds – an international coalition of organizations working together as Global Citizens and Give While You Live are challenging the wealthy to step up their giving. Laura and John Arnold Ventures recruited Ray Madoff to help create the US-based alliance with Global Citizens, to introduce the Senate Bill “Accelerating Charitable Efforts Act” that would establish several changes in the rules governing private and community foundations.
Some say we have brought this on ourselves by creating methods for sheltering astounding sums of money through private foundations with minimal payout rates that enable the wealthy to create financial dynasties in perpetuity. Some have attacked the increasing emphasis of donor advised funds providing tax-deductions, creating financial returns on resources that are not distributed to charitable causes. Rather, they sit idle for years in community foundation accounts. Proposed solutions are worth our attention, and while there are a number of smaller changes that ought to be made, here is a brief description of the main provisions:
Private foundations should no longer consider salaries paid to relatives as part of their administrative expenses, nor have them counted toward their required 5 percent payout. They should no longer sweep non-distributed funds into donor advised funds and they would be required to make all their annual grants to charitable organizations.
Donor advised fund providers would experience more serious changes. Funds being opened would be required at inception to name a recipient in the event that all the funds are not expended in 15 years. Individual funds with over $1 million in assets would be required to prove they have made a minimum 5 percent distribution. All funds must be distributed within a four state area, and no tax deduction would be given for non-cash gifts until the property is sold and proceeds are paid in full to another charitable organization. Gifts made from a donor advised fund identified with a particular donor would be counted as individual support and not as public support for an organization.
Read the full article about philanthropic responsibility by Fred Smith at The Center for Effective Philanthropy.