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For a great book on how these 'charities' are corrupting American politics, and the specific tax loophole that enables them; check out the book 'Dark Money' by

For a great book on how these 'charities' are corrupting American politics, and the specific tax loophole that enables them; check out the book 'Dark Money' by Jane Meyer Reforming this law would cause outrage among the non-profit and charity sector, because it would instantly dry up alot of US philanthropy. It still seems like a necessary reform however.

bilbo0s 8y ago
>It still seems like a necessary reform however... Why? (Serious question. As a matter of full disclosure, I've read 'Dark Money'. To my mind, DAF's don't seem any more evil than any of the other much larger pools of concentrated wealth out there. eg-corporate lobbying money. In fact, the rules seem to make DAF's a good deal less evil.)
- Eridrus 8y ago
  https://qz.com/1092737/us-tax-reformers-should-get-rid-of-the-charitable-deduction-too-bad-they-wont/ https://qz.com/1092737/us-tax-reformers-should-get-rid-of-th...
  - bilbo0s 8y ago
    This link concerns the overall idea of a charitable deduction, it's not really about the funds. My question was, "Why do DAFs need to be reformed?" Even if you got rid of the charitable deduction, you would still have things like DAFs and Foundations. Think of it this way, WRA came into being in 1917. But if you take, say, the Carnegie Foundation, that's been around since 1905 at minimum. So even without a charitable deduction, these foundations and DAFs would exist. So the question is, why do they need to be reformed? (Or, more precisely, why do DAFs need to be reformed?) You linked to an article explaining why you believe WRA to have been a bad idea. (Or maybe why you believe that WRA has become a bad idea? But either way, it's about the reforms introduced by WRA, not specifically about DAFs.)
    - Eridrus 8y ago
      We should get rid of all charitable tax deductions, and then these funds would simply cease to exist, because they only exist to capture these tax deductions while preserving the donors' power. I don't have any beef with the foundations, I have a beef with our tax policy.
      - bilbo0s 8y ago
        >because they only exist to capture these tax deductions while preserving the donors' power... That's just not the case. The reasons that a donor might choose a DAF are legion. Again, I won't go into them all, but let's take an example that is more common than people realize. A donor who has passed on. Sometimes in life, a couple's children need encouragement to be kindly and generous. Let's put it that way. DAFs are part of a somewhat complicated legal framework that can have the effect of actually obliging heirs to share the family's resources. And of course there are a million other reasons that one might be motivated to use a DAF. Point being, DAFs are not solely used as a tax dodge. And the donors are not seeing the benefits from the tax dodge in any case, the vast majority of that benefit is going to the charities and the financial industry. (Heck, many of the donors have even passed on, so of course they don't care about any tax benefit. They made those arrangements for other reasons.)
        Eridrus 8y ago
        I don't really believe that these other reasons are a major driver, but it also doesn't matter one way or the other, we can get rid of the tax benefits and let people keep the rest if they want. I agree that the benefit is largely not accruing to the people claiming the tax deduction, but it is a subsidy coming out of the public purse that we should get rid of. [EDIT]: Actually, I take that back, once you take into account the fact that the amount people donate is not significantly impacted by the tax situation, it seems clearer that the people getting the deduction are the ones getting the benefit/subsidy.
        zip1234 8y ago
        It's not coming out of the public purse. Those are not the public's funds to begin with. The law was democratically decided to allow charitable donations.
- frgtpsswrdlame 8y ago
  The biggest are mentioned in the article: 1. No required distribution per year. A DAF has no obligation to actually give its money away in any timely manner. The Bloomberg article actually undersells how close this was to being regulated. Everybody likes this rule though because it allows people to siphon fees off money which should be in a charity. 2. Upfront tax benefit for later charitable benefit. Charitable tax deductions should be linked to actual charitable giving, not promises to do so. DAFs should only give a tax benefit on the disbursements they make to charities, not on a donors disbursement to the DAF. I think this is the least likely fix to happen but also the one that would most directly fix the problem. 3. Capital gains dodging. The article mentions this but this discrepancy with private foundations should be fixed and donations should be deductible at the cost basis level. Think of this as double-dipping.
  - bilbo0s 8y ago
    1. Would be a good reform, but the financial industry would never allow this kind of thing. 2. There are a lot of reasons that the tax benefit to the DONOR, is given on disbursement to the DAF. I won't go over all of them, but without getting too technical, imagine that the donor has passed on, or soon will. Should his/her heirs be allowed to take that tax benefit as they donate money in the DAF? I think most people would answer "No" to that question. (Believe it or not, oftentimes more money is left to the DAF or Foundation, than is left to the heirs. You could end up in a situation where heirs pay no tax on the money they're earning from their own portion of the estate). So again, we can argue the propriety of the general idea of the charitable deduction, but there are a lot of very good reasons that if the deduction exists, it should be given to the donor, or his/her estate, on donation to the DAF. 3. I wouldn't have too much of a problem with a cost basis deduction, and neither would any of the donors. But again, two things, the financial services industry and the charity would have a problem with that. And second, yet again, what we're really talking about is the existence of the deduction at all, because +/-5 to 10% is not going to make much of a difference to a donor. (Many of whom have passed on in any case.) So these DAF's would exist with or without cost basis level deductions. The only difference is, charities would end up with a bit less money or a bit more money. (Depending on what you're looking at with the capital gains.)
- justicezyx 8y ago
  Not more evil then means not need reform?...
jimmy1 8y ago
> It still seems like a necessary reform however. Reforms have to be taken into the context of their overall impact towards greater good. If overall charity drops, then the reform is bad. If you cause the charities that are out there scrapping with what they having, using 100% of every resource they have to help as many people as possible to go dry because of a small percentage of bad actors, then there must be another way. Incentivize these greedy assholes to chase money in a different avenue that doesn't impact the general welfare.
- taeric 8y ago
  Your own logic is shaky. If it dries up charity organisations, but increases the well being of more people, where does it land?
- lmm 8y ago
  > Reforms have to be taken into the context of their overall impact towards greater good. If overall charity drops, then the reform is bad. Only if the benefits are smaller than the impact of the drop to overall charity. If we taxed a bunch of money that is, say, 95% billionaire tax-avoidance and 5% effective charity, and spent that tax money on the things we democratically spend money on (and say that's, say, 80% lobbying and pork and what have you and 20% effective stuff like infrastructure and well-targeted welfare programs) then that would be a net win.
  - ryandrake 8y ago
    Exactly. This is not a popular opinion but charity (more specifically, the need for charity) should drop. When society relies on plilanthropy to fund the public good, it abdicates its responsibility, allowing a tiny handful of rich philanthropists to decide what is good and what should be funded. In a democracy, the public should decide what good organizations deserve funding, not a few billionaires with potentially massive personal conflicts of interest. This is called plutocracy.
    - jimmy1 8y ago
      > allowing a tiny handful of rich philanthropists to decide Minus the Bill Gates of the world, which we can count on our hands, the vast majority of charity is not done by a "handful of rich philanthropists" but rather, normal, everyday people that want to make a difference. If you turn this into a bureaucratic exercise, there are number of problems that become introduced that have been well pointed out in the past (bureaucracies are slower, the incentives are now not aligned, you now have a third party entity spending instead of first party, so waste is now introduced). The other issue is public charity only works when society shares common values and beliefs. Unfortunately this just simply is not the case anymore in America and if 2016 made that obvious, it's even more apparent with the Kanavaugh hearings. Additionally -- this is how every socialist system has started -- "just let the government do the good for you" which many disagree with on principle: why strip people their freedom to do charitable works on some presupposed better governmental solution? Finally, people forget that the people are what constitutes the public.
Aunche 8y ago
Doesn't Trump's tax eliminate that loophole? There's now a maximum amount of money you're allowed to deduct.
- mercutio2 8y ago
  As far as I know, Trump’s tax increases don’t include any new limitations on charitable deductions, they’re still limited to 50% of AGI. Trump did increase the standard deduction if you’re not itemizing, and dramatically curtailed the state and local tax deductions, so many fewer people will be itemizing, and thus in effect reduced the incentive to donate for those people who’s best tax strategy is to take the standard deduction.
  - usaar333 8y ago
    And actually increased the draw of dafs, since now you want to batch years of donations into a single year to get past the standard deduction.
trimbo 8y ago
Do we actually think that money will be better managed by a government? One charity I consistently give to is Fisher House. They're directly related to the US government -- they provide houses for military families whose loved ones are in a military or VA hospital. I like the cause, but one reason I give to them over others is because they're incredibly efficient[1]. If the charitable deduction went away, would they raise as much money? Would the government have to step in and do it, and is there any prayer they'd do so as efficiently as Fisher House? Either way, Fisher House is a great charity, check it out. [1] - https://www.charitynavigator.org/index.cfm?bay=search.summary&orgid=7585 https://www.charitynavigator.org/index.cfm?bay=search.summar...
- Tsubasachan 8y ago
  If people stop trusting their government and turn to rich patrons instead for protection that country will fall. It ceases to be a nation. Are things really so dire in America?
  - nojvek 8y ago
    The govt is quite intent in pulling funding from a whole bunch of public run programs. Homelessness is very much on the rise for the world’s richest nation that grew its wealth dramatically in the last couple of years.
zrail 8y ago
This is a completely different thing. The article is talking about donor advised funds, which are 501(c)(3) public grant-making charities that allow you to donate cash or non-cash assets. The DAF then allows you to recommend grants to other 501(c)(3) public charities. 501(c)(3)s are completely barred from participating in politics. Dark money runs through networks of 501(c)(4) organizations. They're a different beast entirely and can participate in politics. You don't get a tax deduction for donating to a 501(c)(4).

bilbo0s 8y ago

>It still seems like a necessary reform however... Why? (Serious question. As a matter of full disclosure, I've read 'Dark Money'. To my mind, DAF's don't seem any more evil than any of the other much larger pools of concentrated wealth out there. eg-corporate lobbying money. In fact, the rules seem to make DAF's a good deal less evil.)

Eridrus 8y ago
https://qz.com/1092737/us-tax-reformers-should-get-rid-of-the-charitable-deduction-too-bad-they-wont/ https://qz.com/1092737/us-tax-reformers-should-get-rid-of-th...
- bilbo0s 8y ago
  This link concerns the overall idea of a charitable deduction, it's not really about the funds. My question was, "Why do DAFs need to be reformed?" Even if you got rid of the charitable deduction, you would still have things like DAFs and Foundations. Think of it this way, WRA came into being in 1917. But if you take, say, the Carnegie Foundation, that's been around since 1905 at minimum. So even without a charitable deduction, these foundations and DAFs would exist. So the question is, why do they need to be reformed? (Or, more precisely, why do DAFs need to be reformed?) You linked to an article explaining why you believe WRA to have been a bad idea. (Or maybe why you believe that WRA has become a bad idea? But either way, it's about the reforms introduced by WRA, not specifically about DAFs.)
  - Eridrus 8y ago
    We should get rid of all charitable tax deductions, and then these funds would simply cease to exist, because they only exist to capture these tax deductions while preserving the donors' power. I don't have any beef with the foundations, I have a beef with our tax policy.
    - bilbo0s 8y ago
      >because they only exist to capture these tax deductions while preserving the donors' power... That's just not the case. The reasons that a donor might choose a DAF are legion. Again, I won't go into them all, but let's take an example that is more common than people realize. A donor who has passed on. Sometimes in life, a couple's children need encouragement to be kindly and generous. Let's put it that way. DAFs are part of a somewhat complicated legal framework that can have the effect of actually obliging heirs to share the family's resources. And of course there are a million other reasons that one might be motivated to use a DAF. Point being, DAFs are not solely used as a tax dodge. And the donors are not seeing the benefits from the tax dodge in any case, the vast majority of that benefit is going to the charities and the financial industry. (Heck, many of the donors have even passed on, so of course they don't care about any tax benefit. They made those arrangements for other reasons.)
      - Eridrus 8y ago
        I don't really believe that these other reasons are a major driver, but it also doesn't matter one way or the other, we can get rid of the tax benefits and let people keep the rest if they want. I agree that the benefit is largely not accruing to the people claiming the tax deduction, but it is a subsidy coming out of the public purse that we should get rid of. [EDIT]: Actually, I take that back, once you take into account the fact that the amount people donate is not significantly impacted by the tax situation, it seems clearer that the people getting the deduction are the ones getting the benefit/subsidy.
        zip1234 8y ago
        It's not coming out of the public purse. Those are not the public's funds to begin with. The law was democratically decided to allow charitable donations.
frgtpsswrdlame 8y ago
The biggest are mentioned in the article: 1. No required distribution per year. A DAF has no obligation to actually give its money away in any timely manner. The Bloomberg article actually undersells how close this was to being regulated. Everybody likes this rule though because it allows people to siphon fees off money which should be in a charity. 2. Upfront tax benefit for later charitable benefit. Charitable tax deductions should be linked to actual charitable giving, not promises to do so. DAFs should only give a tax benefit on the disbursements they make to charities, not on a donors disbursement to the DAF. I think this is the least likely fix to happen but also the one that would most directly fix the problem. 3. Capital gains dodging. The article mentions this but this discrepancy with private foundations should be fixed and donations should be deductible at the cost basis level. Think of this as double-dipping.
- bilbo0s 8y ago
  1. Would be a good reform, but the financial industry would never allow this kind of thing. 2. There are a lot of reasons that the tax benefit to the DONOR, is given on disbursement to the DAF. I won't go over all of them, but without getting too technical, imagine that the donor has passed on, or soon will. Should his/her heirs be allowed to take that tax benefit as they donate money in the DAF? I think most people would answer "No" to that question. (Believe it or not, oftentimes more money is left to the DAF or Foundation, than is left to the heirs. You could end up in a situation where heirs pay no tax on the money they're earning from their own portion of the estate). So again, we can argue the propriety of the general idea of the charitable deduction, but there are a lot of very good reasons that if the deduction exists, it should be given to the donor, or his/her estate, on donation to the DAF. 3. I wouldn't have too much of a problem with a cost basis deduction, and neither would any of the donors. But again, two things, the financial services industry and the charity would have a problem with that. And second, yet again, what we're really talking about is the existence of the deduction at all, because +/-5 to 10% is not going to make much of a difference to a donor. (Many of whom have passed on in any case.) So these DAF's would exist with or without cost basis level deductions. The only difference is, charities would end up with a bit less money or a bit more money. (Depending on what you're looking at with the capital gains.)
justicezyx 8y ago
Not more evil then means not need reform?...

jimmy1 8y ago

> It still seems like a necessary reform however. Reforms have to be taken into the context of their overall impact towards greater good. If overall charity drops, then the reform is bad. If you cause the charities that are out there scrapping with what they having, using 100% of every resource they have to help as many people as possible to go dry because of a small percentage of bad actors, then there must be another way. Incentivize these greedy assholes to chase money in a different avenue that doesn't impact the general welfare.

taeric 8y ago
Your own logic is shaky. If it dries up charity organisations, but increases the well being of more people, where does it land?
lmm 8y ago
> Reforms have to be taken into the context of their overall impact towards greater good. If overall charity drops, then the reform is bad. Only if the benefits are smaller than the impact of the drop to overall charity. If we taxed a bunch of money that is, say, 95% billionaire tax-avoidance and 5% effective charity, and spent that tax money on the things we democratically spend money on (and say that's, say, 80% lobbying and pork and what have you and 20% effective stuff like infrastructure and well-targeted welfare programs) then that would be a net win.
- ryandrake 8y ago
  Exactly. This is not a popular opinion but charity (more specifically, the need for charity) should drop. When society relies on plilanthropy to fund the public good, it abdicates its responsibility, allowing a tiny handful of rich philanthropists to decide what is good and what should be funded. In a democracy, the public should decide what good organizations deserve funding, not a few billionaires with potentially massive personal conflicts of interest. This is called plutocracy.
  - jimmy1 8y ago
    > allowing a tiny handful of rich philanthropists to decide Minus the Bill Gates of the world, which we can count on our hands, the vast majority of charity is not done by a "handful of rich philanthropists" but rather, normal, everyday people that want to make a difference. If you turn this into a bureaucratic exercise, there are number of problems that become introduced that have been well pointed out in the past (bureaucracies are slower, the incentives are now not aligned, you now have a third party entity spending instead of first party, so waste is now introduced). The other issue is public charity only works when society shares common values and beliefs. Unfortunately this just simply is not the case anymore in America and if 2016 made that obvious, it's even more apparent with the Kanavaugh hearings. Additionally -- this is how every socialist system has started -- "just let the government do the good for you" which many disagree with on principle: why strip people their freedom to do charitable works on some presupposed better governmental solution? Finally, people forget that the people are what constitutes the public.

Aunche 8y ago

Doesn't Trump's tax eliminate that loophole? There's now a maximum amount of money you're allowed to deduct.

mercutio2 8y ago
As far as I know, Trump’s tax increases don’t include any new limitations on charitable deductions, they’re still limited to 50% of AGI. Trump did increase the standard deduction if you’re not itemizing, and dramatically curtailed the state and local tax deductions, so many fewer people will be itemizing, and thus in effect reduced the incentive to donate for those people who’s best tax strategy is to take the standard deduction.
- usaar333 8y ago
  And actually increased the draw of dafs, since now you want to batch years of donations into a single year to get past the standard deduction.

trimbo 8y ago

Do we actually think that money will be better managed by a government? One charity I consistently give to is Fisher House. They're directly related to the US government -- they provide houses for military families whose loved ones are in a military or VA hospital. I like the cause, but one reason I give to them over others is because they're incredibly efficient[1]. If the charitable deduction went away, would they raise as much money? Would the government have to step in and do it, and is there any prayer they'd do so as efficiently as Fisher House? Either way, Fisher House is a great charity, check it out. [1] - https://www.charitynavigator.org/index.cfm?bay=search.summary&orgid=7585 https://www.charitynavigator.org/index.cfm?bay=search.summar...

Tsubasachan 8y ago
If people stop trusting their government and turn to rich patrons instead for protection that country will fall. It ceases to be a nation. Are things really so dire in America?
- nojvek 8y ago
  The govt is quite intent in pulling funding from a whole bunch of public run programs. Homelessness is very much on the rise for the world’s richest nation that grew its wealth dramatically in the last couple of years.

zrail 8y ago

This is a completely different thing. The article is talking about donor advised funds, which are 501(c)(3) public grant-making charities that allow you to donate cash or non-cash assets. The DAF then allows you to recommend grants to other 501(c)(3) public charities. 501(c)(3)s are completely barred from participating in politics. Dark money runs through networks of 501(c)(4) organizations. They're a different beast entirely and can participate in politics. You don't get a tax deduction for donating to a 501(c)(4).