Do Your Members of Congress Support Excise Tax Legislation?

This is a big week for the Council on Foundations and philanthropy.

The Council is celebrating its 60th Anniversary—60 years of service and leadership to philanthropy and the communities we serve. (As I write this entry, I am on my way to Chicago for a series of meetings and events, including one to celebrate the Council’s 60th.)

Philanthropy may have cause to celebrate, too. We’ve just learned that John Lewis (D-GA), chair of the House Ways and Means Subcommittee on Oversight, and Representatives Danny Davis (D-IL) and Patrick Tiberi (R-OH) introduced an excise tax bill, H.R.4090, late last night–Tuesday, November 17, 2009. The Council supports H.R.4090 and has been working with members of the House Ways and Means Committee to propose this legislation.

This is significant. The proposed bill would amend the Internal Revenue Code of 1986 to modify and simplify the excise tax that a private foundation pays on its net investment income. If enacted into law, H.R.4090 would remove the current two-tiered excise tax imposed on private foundations and replace it with a revenue-neutral, single rate of 1.32 percent. The new rate would apply to five taxable years beginning after December 31, 2009.

These changes are important. For one, simplifying the tax code allows foundations to spend more of their time and money on charitable activities and less on accounting and tax compliance—which is always a good thing. Second, while there are some who feel that the current two-tier rate encourages foundations to give more—in times of economic decline or extraordinary community need—the current system may actually discourage giving. That’s because the current system “rewards” foundations with a lower tax rate so long as their giving increases relative to assets year after year.

Foundations that suddenly increase grants or refuse to decrease their grants as their assets decline have to continue making grants at those levels forever or face paying higher taxes. While few foundations put their own tax concerns ahead of the needs of their communities, it’s wrong to penalize them with higher taxes for doing the right thing.

Thus, Congress should pass a uniform flat rate for the excise tax because:

• Private foundations that make extraordinary efforts to give now should not be penalized in future years when the value of their endowments recover in the markets (because of the elimination of the five-year tax penalty that follows a generous year of giving).
• Simplifying the tax code means less time spent on accounting and tax compliance and more on making a difference in our communities.

This is an important issue in any environment but particularly at a time when foundation endowments have lost 30 percent of their value.

But, we need your help. We now have bills introduced in the House and the Senate to achieve this important policy reform. And we’re asking you to contact your representative in Congress, asking them to co-sponsor H.R.4090.

We ask you to also contact your two senators, asking them to co-sponsor the companion Senate excise tax bill (S.676), which was introduced on March 24, 2009. (To date, this bill has seven co-sponsors.)

Remember: the more co-sponsors on the bill (particularly co-sponsors from the House Ways and Means and Senate Finance committees), the high likelihood that Congress will enact the excise tax bill into law.

The Council’s here to help so contact Andrew Schulz (703-879-0715) or Chatrane Birbal (703-879-0689) in our Public Policy Department if you have any questions.

We have much to celebrate in philanthropy but let’s add one more win: celebrating a new, simpler and fairer excise tax rate for private foundations.

Steve Gunderson is the president and CEO of the Council on Foundations.