Public Policy at Donors Forum

Policy Principles | Legislative Agenda 2008

Public Policy Principles

Donors Forum is the premier resource for leadership, education, research, and action on behalf of philanthropy and nonprofits in Illinois. As a nonprofit membership association of grantmakers, individual donors and advisors, Donors Forum advances philanthropy by serving its members and by promoting an effective and informed nonprofit sector. In particular, Donors Forum works on behalf of foundations and nonprofits to educate public officials about the value and needs of philanthropic and nonprofit organizations and to advocate for public policies that promote philanthropy and the sector as a whole.

Donors Forum work in public policy is guided by six basic principles, summarized below:

Education of policy makers about the nature and importance of the nonprofit and philanthropic sectors.
Donors Forum will build an informed and supportive community of policy makers through regular dialogue, education, information and advocacy, and will work with others in the nonprofit and philanthropic sector to advance this goal.

Necessity of an advocacy role for the charitable community.
Advocacy, within certain constraints, is legal for nonprofit organizations and conducive to an informed, healthy and strong democratic society. Donors Forum supports the advocacy rights of nonprofits and believes that nonprofits can and should participate in public policy dialogue that affects their organizations, communities and the people they serve. Donors Forum supports public policy efforts that safeguard and enhance these advocacy rights.

Supportive tax policy for private foundations.
Donors Forum supports tax policy that encourages the growth, maintenance and vitality of private foundations.

Preservation of charitable deductions and strengthened tax policy supports for nonprofit organizations.
Donors Forum supports the preservation of charitable deductions as an important tool to encourage taxpayer contributions to nonprofit organizations. Donors Forum supports enhanced tax policies that broaden the incentive for all donors to give to all charitable organizations. Donors Forum also supports tax policies that encourage the stability, growth and vitality of nonprofit organizations.

Equitable treatment of contributions to nonprofit organizations.
Donors Forum supports tax policy that encourages people to give to charities of their choice. Respecting donors' choices, we believe that government should not attempt to influence private donors' choice by singling out specific charitable activities or organizations as deserving greater or lesser tax support.

Effective management and governance of foundations, other nonprofit organizations and corporate giving programs.
Donors Forum supports public policies that ensure effective management of charitable resources and supports values of transparency and ethical conduct, responsible philanthropy and corporate giving, and reasonable access to information. Donors Forum supports adequate funding of enforcement agencies for nonprofit compliance and oversight

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Federal Legislative Agenda 2008

Donors Forum works on behalf of foundations and other nonprofits to educate public officials and to advocate for public policies that promote philanthropy and the sector as a whole. Donors Forum work in public policy is guided by six basic principles:

• Education of policymakers about the nature and importance of the nonprofit and philanthropic sectors
• Necessity of an advocacy role for the charitable community
• Supportive tax policy for private foundations
• Preservation of charitable deductions and strengthened tax policy supports for nonprofit organizations
• Equitable treatment of contributions to nonprofit organizations
• Effective management and governance of foundations, other nonprofit organizations and corporate giving program
  

Exercise Caution in Oversight and Regulation. Donors Forum seeks to promote awareness of the significant negative impact the nonprofit sector can experience when legislative or regulatory efforts are pursued without sufficient understanding of the costs and burdens they impose. Nevertheless, Donors Forum supports well-considered government regulation that avoids negative consequences and effective enforcement to ensure that the nonprofit community operates in accord with the public's trust. This becomes even more critical during difficult economic times.

Background: The vast majority of foundations and other nonprofits comply with applicable federal, state and local laws. Donors Forum supports adequate funding of enforcement agencies for nonprofit compliance and oversight. Donors Forum opposes new, inappropriate regulations that will require nonprofits to invest additional time and money for compliance and take away their ability to provide much needed services. Increasing regulations by requiring burdensome fees and unnecessary reporting will hinder-rather than help-the important work nonprofit organizations are doing for the public good.

Legislative History: In 108th Congress, the Senate Finance Committee began a series of hearings focused on charitable reforms. At the request of the Finance Committee, The Panel on the Nonprofit Sector was created in October 2004 and developed recommendations to improve the governance, ethical conduct and oversight of nonprofit organizations. The Panel submitted its Final Report to Congress in June 2005. The House Ways and Means Committee held hearings in 2005 to examine the tax treatment of exempt organizations. In August 2006, the Pension Protection Act (HR 4) was signed into law. The legislation which includes a range of charitable giving incentives and reforms, some of which have lapsed, also created unanticipated burdens and costs. An example is the unintended significant compliance problems experience by small nonprofits that were mischaracterized as supporting organizations. In October 2007 the Panel on the Nonprofit Sector released Principles for Good Governance and Ethical Practice, a national set of guidelines designed to support board members and staff leaders of every charitable organization as they work to improve their own operations. In Illinois, the Illinois Nonprofit Principles and Best Practices, which were recently updated to align with the national guidelines, help nonprofits, including grantmakers, take specific, concrete steps to ensure adherence to the high ethical standards and strong governance principles expected of them.

Support an Advocacy Role for the Charitable Community. Donors Forum supports the advocacy rights of nonprofits and believes that nonprofits can and should participate in public policy dialogue that affects their organizations, communities and the people they serve. Donors Forum supports public policy efforts that safeguard and enhance these advocacy rights.

Background: Advocacy, within certain constraints, is legal for nonprofits and conducive to an informed, healthy and strong democratic society. Elected officials need to hear from nonprofits about issues affecting their constituents. Nonprofits provide valuable information that helps Congress and federal agencies make informed policy decisions. Donors Forum opposes any efforts that would restrict the legitimate advocacy role of nonprofit organizations.

Legislative History: In October 2005, the House of Representatives approved the Federal Housing Finance Reform Act (HR 1461). The bill included language that would make any nonprofit that has engaged in nonpartisan election activities within the last 12 months ineligible for grants under a newly created Affordable Housing Fund. The proposal also prohibited nonprofit recipients from the fund from engaging in any of these activities during the grant period, even if the activities are paid for with private, non-federal funds. Another bill, the Head Start Improvements for School Readiness Act (S 1107), also created new barriers to nonprofit advocacy by expanding a prohibition on voter registration to non-federal funds as well as Head Start program funds. These provisions restrict the advocacy rights of nonprofits and set a dangerous precedent for charitable organizations that receive other federal grants. The Ethics and Lobbying Reform Bill, signed by President Bush in September 2007, includes new disclosure requirements for nonprofits that retain federal lobbyists.

Reform the Excise Tax on Private Foundations. Donors Forum supports legislation to eliminate or lower the excise tax on private foundation investment income.

Background: The current excise tax is equal to 2 percent of a foundation's annual net investment income. The tax is reduced to 1 percent in any year in which the foundation's percentage of distributions (against its assets) for charitable purposes, or "payout," exceeds the average percentage of its distributions over the five previous taxable years. This two tiered rate - which was originally designed as an incentive to increase giving levels - discourages foundations from increasing their distributions for charitable purpose. While a moderate increase in distributions triggers the 1 percent tax rate, a significant increase in a given year creates the risk of exposure to higher excise taxes for years to come. Thus, foundations have no incentive to increase distributions substantially to meet a critical need in one year. Further, if a foundation wishes to increase giving in response to a particular need in one year, it could risk higher future taxes if it moderates giving levels after the need passes. Eliminating the excise tax would remove these disincentives and would actually make more foundation dollars available for charitable purposes for grants, instead of paying them out in taxes. Finally, the revenue from the excise tax is not used for its intended purpose: to support IRS oversight of exempt organizations. If the tax is not directed at enforcement activities, it should be eliminated.

Legislative History: Bills were introduced to reduce or repeal the excise tax in the 107th, 108th and 109th Congress. In the 108th Congress, the Charitable Giving Act of 2003 (HR 7) approved by the House in September 2003, included a provision that would reduce the excise tax to a flat 1 percent of investment income. However, the bill did limit the administrative expenses that are allowed as distributions. In January 2005, a bill (HR 217) was introduced to repeal the excise tax for years beginning after December 31, 2005.

Reform the Estate Tax. Donors Forum opposes repeal of the estate tax since it is a strong incentive for charitable giving. Donors Forum supports a reasonable increase in the exemption level to exempt all but the largest estates from the tax.

Background: Traditionally, the estate tax has created strong incentives for the creation of private foundations and giving plans. Recent studies suggest that the repeal of the estate tax would have a negative impact on charitable donations. In 2004, the Congressional Budget Office released two reports on the impact of the estate tax repeal. In the first report, the CBO concluded that eliminating the estate tax would result in an estimated 22 percent decline in charitable bequests (gifts to charity through a person's will). In the second report, the CBO concluded that increasing the amount exempted from the estate tax from $675,000 to either $2 million or $3.5 million would reduce charitable giving by less than 3 percent. Repealing the estate tax would decrease donations to charities by 6 to 12 percent, according to the CBO. A 2003 report by the Brookings Institution and the Urban Institute found that estate tax repeal would reduce charitable bequests by between 22 and 37 percent, or between $3.6 billion and $6 billion per year.

Legislative History: In 2001, Congress enacted legislation that gradually phases out the estate tax by 2010, at which time it is repealed for one year. The rates will go back to prior law in the year 2011. In April 2005, the House of Representatives voted 272-162 to permanently repeal the estate tax (HR 8). During the 108th Congress, the House voted 264-163 to permanently repeal the estate tax (HR 8). The Senate did not vote on the measure before the 108th Congress adjourned in December 2004. In the 109th Congress, a bill (HR 5970) that would have led to a near repeal of the estate tax was defeated in the Senate in August 2006 after proponents failed to get the 60 votes needed to end debate on the bill. The bill passed the House in July 2006. The House also passed an estate tax bill (HR 5638) in June 2006 which would have increased exemption amounts and considerably lowered the estate tax rate.

Support the IRA Charitable Rollover. Donors Forum supports legislation that would allow individuals 59½ and older to make contributions of IRA assets to charitable organizations without tax penalty.

Background: The IRA charitable rollover provision provides a powerful tax incentive for donors to give from these accounts to charitable organizations. IRA assets are an untapped resource, estimated to represent billions of dollars annually in potential gifts for charity. At a time of shrinking public resources, relatively flat giving from foundations and corporations, and increasing social needs, gifts from individuals have become a crucial factor in nonprofit sustainability.

Legislative History: In August 2006, Congress passed the Pension Protection Act (HR 4) which included a limited IRA charitable rollover provision. Under the provision, taxpayers age 70 ½ and older can make tax-free distributions to charitable organizations from IRA accounts of up to $100,000. However, any distributions they make to donor-advised funds, supporting organizations and private foundations do not qualify for this incentive. The IRA charitable rollover provision was included in the Senate "Tax Relief Act of 2005" (S. 2020), which passed in November 2005 by a vote of 64-33. The provision would have allowed individuals 70 ½ and over to make tax-free distributions from their IRAs directly to charitable organizations. In April 2005, Representative Wally Herger (R-CA) introduced HR 1607, the Public Good IRA Rollover Act. The bill would allow donors aged 59 ½ and over to rollover amounts from an IRA to create a life income gift to a charity, and donors aged 70 ½ and over to make direct cash contributions to a charity. Representative Melissa Bean (D-8) was a co-sponsor of HR 1607. In the 108th Congress, the Charitable Giving Act of 2003 (HR 7), passed by the House, and the CARE Act of 2003 (S 476), passed by the Senate, both included IRA charitable rollover provisions. In December 2007 the Pension Protection act expired. HR 1419 and S 819 were introduced in the 110th Congress to extend and broaden the IRA Rollover and were co-sponsored by Representative Melissa Bean (D-IL), Senator Dick Durbin (D-IL), Representative Rahm Emanuael (D-IL), and Representative Jerry Weller (R-IL).

Support Charitable Deduction for Non-Itemizing Taxpayers. Donors Forum supports legislation that would provide a meaningful tax deduction for charitable contributions to non-itemizers.

Background: Non-itemizing taxpayers account for nearly two-thirds of all taxpayers in Illinois, and number more than 84 million nationally. Non-itemizer proposals could improve tax fairness for all taxpayers and serve as a powerful catalyst for increased giving to nonprofit organizations. In a study commissioned by Independent Sector and the Council on Foundations, PriceWaterhouse Coopers found that the amount of charitable giving spurred by this charitable deduction across the nation could increase by $16.5 billion over a five-year period. In Illinois alone, an additional $762 million in giving would be spurred over that same period.

Legislative History: The "Tax Relief Act of 2005" (S. 2020), passed by the Senate in November 2005, would have allowed a deduction for a portion of charitable contributions made by individuals who do not itemize. Single filers would have been allowed to deduct total contributions over $210 ($420 for joint filers). The provision was intended to be in place for two years. In May 2006, Congress passed the final version of the tax reconciliation bill (HR 4297) without the non-itemizer provision. During the 108th Congress, the Charitable Giving Act of 2003 (HR 7) and the CARE Act of 2003 (S 476) both included provisions allowing deductions for non-itemizing taxpayers. Although both bills passed with overwhelming support, differences between the CARE Act and HR 7 were not resolved before the end of the 108th Congress.

For more information please contact: Srilatha Lakkaraju, Public Policy Coordinator, at 312-327-8946 or via email.

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