Monday, August 6, 2018
Following up on Saturday's post, NY Times: How Tech Billionaires Hack Their Taxes With Donor-Advised Funds: Daniel Hemel (Chicago), A Qualified Defense of Donor Advised Funds:
The New York Times has published a very negative article on donor advised funds (DAFs) in today’s business section. The headline characterizes DAFs as a “philanthropic loophole” that “tech billionaires” use to “hack their taxes.” The article goes on to describe DAFs as “a sort of charitable checking account with serious tax benefits and little or no accountability.” The most withering criticism of DAFs comes from the University of Southern California’s Ed Kleinbard (with whom I agree on most other tax policy questions). DAFs are “a fraud on the American taxpayer,” the article quotes Kleinbard as saying. “They’re a way for the affluent to have their cake and eat it, too.”
The remarkable rise of DAFs poses a number of interesting policy questions. But I think these questions are a lot more complicated than the Times article lets on. DAFs can serve socially useful functions, such as facilitating stock contributions to smaller 501(c)(3)s, encouraging donors to be more reflective in their philanthropic decisions, and extending the tax incentive for charitable giving beyond the very rich. It’s worth thinking about those benefits before concluding that DAFs are a “fraud.” ...
Is this having your cake and eating it too? Well, it’s really more like refrigerating your slice of cake and giving it away later. You can’t withdraw the money and use it yourself. The IRS won’t allow that, and Fidelity Charitable is not going to jeopardize the tax-exempt status of its $21 billion fund by letting you use its DAF like an ATM. ...
I don’t want to portray DAFs as a philanthropic utopia. Fees are probably too high at most DAFs, though fierce competition among Fidelity, Schwab, and Vanguard has gone some way toward pushing expenses down. Silicon Valley Community Foundation, one of the largest DAFs, faces serious allegations that it allowed an abusive workplace culture to take root (ultimately resulting in the recent resignation of its CEO). But of all the tax “loopholes” to get angryabout, I would rank this one quite low on my list.