Taxing questions – Foundations eye Clinton tax plan

President Clinton’s 2001 budget proposal calls for simplifying a two-tiered excise tax structure for charitable foundations that critics say discourages big increases in giving, The New York Times reports.

The current system taxes 1 percent of annual investment income for a foundation that maintains or increases its level of giving, or 2 percent for those that don’t.

By law, foundations must give away at least five percent of their assets each year to keep their nonprofit status. Foundation taxes total roughly $430 million a year, according to the Council on Foundations, a membership group that backs Clinton’s plan.

But some foundations say the current tax system is too complicated and that foundations can be reluctant to increase their giving because subsequent reductions could trigger higher taxes, the Times reports.

Clinton wants to replace the system with a flat 1.25 percent tax. The goal is to let foundations focus on making grants without worrying about the impact on their taxes.

Response to the proposal is mixed, the Times says.

Some charity advocates say the proposal will remove the only existing incentive to encourage more giving, particularly in the face of a booming stock market that has powered a surge in foundation assets to $330 billion at the end of 1997, the most recent year for which data are available, according to the Foundation Center, a New York research group.

Grants totaled just under $16 billion, or 4.8 percent, suggesting that foundations on average keep their grant-making to the minimum required, the Times reports.

The Council on Foundations, a membership group for foundations and corporate giving programs, says the current tax system discourages giving.

But critics say foundations may be worrying more about whether their investments will continue to grow than with their primary mission, the Times says.

Clinton’s plan “does nothing to ensure more money gets into the hands of advocates and service providers,” according to the National Committee for Responsive Philanthropy, a watchdog group in Washington that says any cut in the excise tax should be tied to an increase in foundation giving.

The group wants to raise to 6 percent the minimum percentage of assets that foundations must give away each year, the Times reports.

Another group, the National Network of Grantmakers, wants foundations to voluntarily raise to at least six percent of assets the amount they give away.

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