These Donors Are Revolting Against the “Charity Lobby” to Push Sweeping Philanthropic Reform

For over a half-century, going all the way back to the Tax Reform Act of 1969, significant reform to the laws governing foundations, donor-advised funds and charitable giving has been a nonstarter. Meaningful changes to what are often toothless and obsolete regulations remain a pipe-dream, and that has a lot to do with prominent philanthropic sector organizations and stakeholders going to bat for the status quo. But over the past several years, energy has been building among reform advocates, including those who have backed the Accelerating Charitable Efforts (ACE) Act.

In the latest development in that ongoing saga, a coalition of donors has come together around an effort they’re calling the Donor Revolt for Charity Reform — and they’re willing to fight prominent philanthropic stakeholders to push for legislative changes that go well beyond the ACE Act’s provisions. The battle may seem like a decidedly uphill one, but the organizers and initial signatories are armed with both a multipronged strategy and updated data showing that the majority of the public sees things their way.

Donor Revolt is a joint effort bringing together many of the most vocal organizations, donors and donor organizing groups that have been pushing reform — Patriotic Millionaires, the Institute for Policy Studies, Inequality.org, Solidaire Action, the Excessive Wealth Disorder Institute (EWDI), Resource Generation, the Decolonizing Wealth Project and #HalfMyDAF.

The roughly 170 donors who signed on to the Donor Revolt before its April 4 launch include Crisis Charitable Commitment founder Alan Davis; Segal Family Foundation founder Barry Segal; Chorus Foundation founder and President Farhad Ebrahimi, and Solidaire Network cofounder Leah Hunt-Hendrix. All of the signatories are donors with either private foundations or their own DAFs, and their message is a simple one: “We enthusiastically support reforming our nation’s philanthropic sector to ensure that when funders receive tax breaks for charitable contributions, those contributions actually get to working charities.”

Donor Revolt has specific ideas for how legislative changes could mandate greater payout and address the philanthropic sector’s ever-escalating top-heaviness. Their reform demands include increasing private foundations’ minimum required payout from 5% to 7% (and to 10% for funders with assets over $50 million); excluding donations to DAFs and payments to heirs from payout calculations; requiring a five-year payout for all DAFs; and limiting the estate tax charitable deduction to a percentage of the estate’s value, and to a lower percentage for gifts to private foundations and DAFs.

These and other Donor Revolt demands go well beyond the provisions of the ACE Act, which, for example, would only place limits on tax deductions for money moved to DAFs rather than excluding such transfers from being counted toward a foundation’s payout altogether. The ACE Act would also give DAF holders 50 years to move the money and says nothing about including payments to already-wealthy heirs as part of a foundation’s minimum payout requirements.

Donor Revolt’s proposed reforms also include help for everyday taxpayers. If the group has its way, all taxpayers, and not just those with the money to itemize their returns, will receive a tax deduction for their charitable donations. Beyond that direct benefit, the Donor Revolt agenda, if enacted, could help decrease the estimated $111 billion that U.S. taxpayers spend to subsidize charitable giving by the rich.

Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies, called the ACE Act a “weak and insufficient” bill that “was cooked up in a conference room at Bridgespan with John Arnold and a couple of billionaires,” nonprofit leaders and groups that care about inequality. According to Collins, Donor Revolt, on the other hand, is not “just a philanthropy-oriented coalition, we're a coalition that cares about democracy and all kinds of issues” which are impacted by the unequal power exercised by wealth-holding people and organizations. Collins said that there are aspects of the ACE Act that the new group would be happy to see move forward, but “we need to do better, and we think the constituency is there for something a little bit bolder.”

“The only thing standing in our way is the charity lobby”

Arrayed against Donor Revolt’s agenda are those backing the status quo: the nonprofits, sector groups, DAF sponsors and community foundations that have been spending donor money to defeat even the relatively milquetoast reforms called for by the ACE Act.

On the same day that Donor Revolt made its public launch, the Institute for Policy Studies released a report titled “Who Is Lobbying Against Common-Sense Charity Reform?” The paper is just what the title says: an IPS rundown of the organizations, including numerous DAF sponsors and philanthropy-serving organizations, that have spent millions to ensure that the ACE Act never makes it into law.

Just five such organizations — Community Foundation Awareness Initiative, Philanthropy Roundtable, Jewish Federations of North America, National Philanthropic Trust and Council on Foundations — collectively spent nearly $2 million on anti-ACE Act lobbying between the first quarter of 2021 and the second quarter of 2023. But they weren’t alone. The Leukemia & Lymphoma Society, several community foundations, and, of course, for-profit DAF management firms like Fidelity Charitable have all weighed in against the ACE Act, DAF reform more generally, or both.

The goal of the report, Collins said, is to point out that “the reason we don't have these common-sense charity reforms is because there's a powerful group that's defending the status quo.” Launching Donor Revolt provides reform-minded donors with the opportunity to ask why these organizations are spending money to oppose reforms that a number of the donors themselves support. Collins said he hopes the fact that wealthy donors are speaking up will help give more nonprofits the feeling that they’re covered if they want to join the push for change.

Broad public support for reform

Donor Revolt’s posture may seem extreme to some elements of the philanthropic establishment, but according to recent polling data, the American public is very much on board — once it’s aware of the issues at stake. A March poll commissioned by Inequality.org and The Giving Review seems to show strong, bipartisan agreement about the need for philanthropic reform. According to the poll, 83% of respondents agree that taxpayers shouldn't have to subsidize permanent legacy foundations, 71% say that Congress should raise the annual foundation payout to 10%, and 75% also believe there should be a cap on the amount of charitable giving that ultra-wealthy donors can claim to reduce their taxes in the form of either a lifetime maximum or an annual cap.

Further, 79% of Americans believe that donor-advised fund accounts should be paid out in their entirety within five years, and a “high portion” would prefer that DAF accounts be emptied within two years. According to the poll’s summary, philanthropic reform is one of those rare areas where both the political left and right are united: “Ask whether taxpayers should subsidize billionaires and the wealthy in creating foundations that will exist in perpetuity, 77% on the right agree with 87% on the left that they should not. Ask how quickly donors should have to move money out of donor-advised accounts to working charities, 74% of conservatives agree with the 88% of liberals who believe it should be within five years or less.”

While that level of unanimity should make opponents of reform nervous, a lack of public awareness limits pressure for change: Fewer than a third of Americans know about DAF rules and how those rules benefit the wealthy, and just 16% understand the scale of wealth that’s been accumulated by DAFs and foundations. Meanwhile, 58% of Americans understand that working charities are struggling. If the organizations and organizers behind Donor Revolt can change that math, they may have a real chance at getting voters behind them.

Collins said that the collaborative hopes to demonstrate that “the donors want the changes, and nonprofits want the changes. The polling that we did shows the public thinks it’s a good idea. So the only thing really standing in our way is the charity lobby.”

Coming through different doors to move the needle

The Donor Revolt collaborative is made up of organizations with a variety of strengths, from sheer financial heft in some cases to public education chops, and, through Solidaire Action and Patriotic Millionaires, the ability to engage in lobbying. Collins said that roughly five federal legislators may be on board to introduce reform legislation as soon as the end of next month. Meanwhile, on April 30, the Excessive Wealth Disorder Institute is hosting “Fixing Philanthropy: A Charitable Reform Giving Summit” in San Francisco. EWDI bills the event as “a solution-oriented summit where organizing, policy and advocacy converge to create impactful change in charitable giving.”

The organizations that have joined Donor Revolt are each coming to the issue of philanthropic reform “through a different door,” said Excessive Wealth Disorder Institute Executive Director Gabriela Sandoval. “Speaking for EWDI, we're thinking a lot about the aspects of philanthropy that allowed wealth hoarding, but if you compare, for example, the way that Patriotic Millionaires comes through the door on this, they’re an organization of wealthy people who are saying, ‘Tax us!’” The goal of the April 30 event, she said, is for the participants to clarify their roles so they can move forward together, no matter which “door” inspires their desire for philanthropic reform.

"The time for just signing a pledge is done,” Sandoval said. “We're saying 'OK, everybody signed a pledge. Now, what else can we do to really move the needle on this question?’"

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