posted on: Friday, March 27, 2009

By Aaron Dorfman

A few days ago, Stephanie Strom of the New York Times reported on a bill that would change the excise tax structure for foundations to stimulate more grantmaking. The bill, sponsored by Democratic senators Charles E. Schumer of New York, and Debbie Stabenow and Carl Levin, both of Michigan, would replace the current 2-tiered system with a single revenue-neutral tax rate of 1.32 percent.

NCRP has long supported a reduction or simplification of the excise tax. Not only is the current system confusing, it is also a disincentive to increasing grantmaking. Some funders who might choose to pay out at higher rates, especially in times of crises, don't do so out of a desire to avoid paying the higher excise tax in future years. The country is in a full-blown recession, and a majority of Americans are feeling the fallout. Many nonprofits now, more than ever, need foundation grants to help meet the skyrocketing demand for their services.

This new senate measure also reminds us to think about what the excise tax is for, and how it should be used. The original intent for taxing foundation investment income was to pay for the cost for the IRS to oversee tax-exempt organizations. And yet, the income from the excise tax is diverted to the general treasury, and the funding that gets budgeted for the IRS Tax Exempt Division is insufficient to cover its oversight duties.

NCRP will be following this issue as it progresses.

What are your thoughts about the proposal?

Aaron Dorfman is executive director of the National Committee for Responsive Philanthropy.