"Warehousing Wealth" philanthropy draws criticism

WASHINGTON - As Republican Party leaders work to pass what's known as Tax Reform 2.0, a tax break taken almost exclusively by the top 1 percent of earners has come under increased scrutiny.

Donor-advised funds are the fastest growing recipients of charitable giving, up from $14 billion in 2012 to $23 billion in 2016.

Josh Hoxie, project director of the Washington-based think tank Institute for Policy Studies, says because the funds technically never have to be distributed, DAFs are effectively warehousing the nation's charitable wealth.

That's a problem, he says, because it prevents money from helping to meet immediate needs at soup kitchens, homeless shelters and other services.

"Whereas needs are immediate - and the tax write-off, by the way, is immediate - the actual direct good of this charitable giving can take as long as the donor wants, which is not in the public interest," he states.

Hoxie says the average donor-advised fund donor makes more than $2 million a year, and for every $1 deposited in the fund, U.S. taxpayers end on the hook for up to 57 cents of that gift in the form of lost tax revenue.

Proponents say the funds encourage philanthropy by giving donors control over how their gifts are used, and time to develop their giving strategy.

Originally formed by community foundations, DAFs have been aggressively adopted by for-profit Wall Street firms including Fidelity Investments, Charles Schwab and Vanguard.

Hoxie notes that firms are profiting off of the donations because they can take fees on each investment move.

"Fidelity has a direct fiscal interest in maintaining and growing the size of their donor-advised funds, not in dispersing these funds to charities to solve deep and persistent public needs," he explains.

Hoxie is co-author of a recent report on DAFs called "Warehousing Wealth." Its recommendations include putting a three-year deadline on distributing funds, and delaying any tax benefits until the money actually reaches charities.

Hoxie says establishing real penalties for not following these kinds of guidelines can prevent the charitable sector from being turned into another tax scheme for the ultra-wealthy.

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