The recent unveiling of the Biden administration’s proposed budget for fiscal year 2025 serves as a manifesto of the president’s priorities, albeit one unlikely to materialize into legislative reality. While the budget encompasses a spectrum of tax and spending proposals, three provisions targeting America’s philanthropic benefactors and foundations raise the greatest concern for charities and the people they serve.
Limiting Private Foundations Use of DAFs
One proposal that stands out as concerning and unwarranted is a perennial call to limit how foundations can give through donor-advised funds (DAFs). This was in the last two Biden budgets and part of the failed anti-DAF legislation in the last Congress.
At its core, the proposal aims to disallow contributions to DAFs from counting toward the foundation 5% minimum payout rate unless fully disbursed from the DAF within the subsequent year. However, this perspective fails to acknowledge myriad legitimate reasons why a foundation might opt for giving through a DAF. Such rationales range from pooling resources with other donors to safeguarding privacy when supporting contentious causes.
Philanthropy Roundtable recently released a report that runs through a comprehensive list of all the valuable and innovative ways private foundations may use DAFs to pursue their charitable missions. While foundations rarely use DAFs as a tool, there is simply no reason to set arbitrary limits on the use of self-regulating vehicles that may lead to less efficient giving.
Unfairly Targeting Family Foundations
Furthermore, the budget again discriminates against family foundations with working family members. While foundations without family staff can count staff expenses as part of their annual payout, the proposal calls for family staff to be excluded from this.
Existing regulations robustly address concerns of self-dealing within private foundations. Indeed, empirical studies have indicated family foundations typically exhibit lower administrative expense ratios compared to their nonfamily counterparts. This discrepancy underscores the unsubstantiated basis for treating family foundations disparately under the law.
Unintended Consequences of War on Wealth
The budget’s broader vilification of “wealth” introduces additional apprehensions.
President Joe Biden’s advocacy for a new 25% tax on assets, including illiquid assets, coupled with proposed alterations to capital gains and carried interest taxation, poses significant ramifications for charitable giving. Such changes, alongside new reporting requirements for trusts, threaten to impede donors’ capacity to support charities effectively.
Even if charitable resources were exempt from these proposed taxes, the collateral damage to charitable endeavors would be substantial. Previous analyses of similar proposals have shown they would cause serious economic harm and therefore diminish resources available to charities and the communities they serve.
In response to these concerns, the Roundtable is committed to educating Congress on the potential repercussions of the anti-charitable measures embedded within the Biden budget. Following a year of reduced charitable giving, hampering America’s philanthropic spirit and impeding charities’ access to support represents a perilous misstep.
