BC is hosting an exciting conference this week on the future of philanthropy. One of our major focuses will be on whether current law has gotten the right balance between current and future spending. For example, should we be doing more to encourage large foundations to pay out their considerable fortunes, rather than hoarding them for the future?
I’ll blog a bit more with some of my thoughts on those questions this week.
Let’s start today with some background. Descriptively, most foundations pay out a small fraction of earnings; the law imposes penalty taxes on those that pay out less than five percent, but the median firm pays distributes slightly less than that:
What you’re looking at are the proportions of private foundation’s investment assets distributed annually for charitable purposes. The dashed line is the five percent “minimum payout” encouraged by a federal tax on foundations that distribute below that threshold. The upshot, for me, is that three-quarters of the 80,000 or so private foundations tracked in these data spend less than 6% of their investment assets each year. In other words, their spending plan is massively slanted towards future, rather than current, payouts.
What, if anything, justifies that pattern?