Philanthropy Northwest Steps Into the DAF Debate

As various proposals for philanthropic reform have emerged, most associations of grantmakers have opposed them or stayed conspicuously silent. Philanthropy Northwest – a network of nearly 140 foundations in six Pacific Northwest states – stands out. Marc Moshcatel is the Public Policy and Research Analyst at Philanthropy Northwest, interested in understanding how public policy and philanthropy impact people – and most importantly, how these institutions can do better.‍

Marc Moshcatel is the Public Policy and Research Analyst at Philanthropy Northwest, interested in understanding how public policy and philanthropy impact people – and most importantly, how these institutions can do better.

Marc, unlike many philanthropy-based institutions, Philanthropy Northwest has supported regulation to increase transparency and payout by donor-advised funds (DAFs). How have foundations and donors reacted to your taking this position?

Our policy position states that “we favor regulation to increase transparency and payout of donor-advised funds (DAFs), and we support increased education and research to help us deepen understanding of the complexities and considerations to inform our stance on specific proposals.” There is more on our website about DAFs and our positions.

There’s been a wide spectrum of reactions to this position, with some supportive of reform, some opposed, and some in favor of some reforms and not others. Ultimately, the Philanthropy Northwest board adopted this position with the understanding that philanthropic vehicles like DAFs need to be accountable by getting resources to communities in a timely manner.

Philanthropy Northwest has urged policymakers to replace the current charitable tax deduction with a universal tax credit to make it available to more people. Why would this be a better option to encourage charitable giving?

One of Philanthropy Northwest’s policy goals is to bring more resources to communities. Unfortunately, the charitable deduction isn’t the most effective solution. People across income levels and demographics give to charity, but the charitable deduction is designed for wealthy donors, the vast majority of whom are white: most of the tax break goes to the top 1% and less than 10% of the deduction benefits donors of color. Providing this benefit mostly for high-income donors costs taxpayers roughly $60 billion per year. The new tax bill will shift these numbers, but the trends will likely be the same.

And by centering the wealthy, the deduction inadvertently pushes nonprofits to cater to the interests of a select few rather than communities at large. Tax analyses have found that replacing the deduction with a universal tax credit – such as 25 cents back per dollar donated – would increase giving, bring in millions of new donors, and distribute the tax benefits more fairly. It could be refundable to some extent so that lower-income donors get the benefit. Also, putting a sufficient floor on the incentive – a minimum threshold people must donate to get the incentive – would significantly reduce the amount of taxes lost.

Kudos to you and Philanthropy Northwest for taking such strong stands on DAF report and improvements to the charitable deduction!

Next, after a series of Trump administration executive orders, organizations of all types are being strong-armed to step back or eliminate positions and practices on DEI (diversity/equity/inclusion) with which the Trump Administration disapproves. For example, Charity Navigator recently dropped a part of its rating system, the section of the Culture & Community beacon asking about commitment to equity and inclusion practices. How are your members reacting to these anti-DEI pressures?

The anti-DEI pressures have created uncertainty and plenty of questions from our network. [They wonder] Can I still do this program for my community? Can I still say certain things when describing my work? Is my organization next to lose federal funding, or have its nonprofit status threatened?

We have hosted conversations and programs with legal experts to keep people updated and emphasize that organizations should not preemptively halt their efforts out of fear, because doing so gives the executive orders power they might not actually have. “Do not obey in advance,” as Timothy Snyder wrote in his book On Tyranny. Charities and funders must stand up for their values by continuing to support their communities.

Foundations in the Pacific Northwest have a reputation of being more progressive than in the rest of the U.S. Why do you think that is? What should other parts of the country know about how philanthropy has evolved in the Northwest?

I didn’t realize that was our reputation! Maybe it comes from having some foundations based in the Seattle and Portland areas (for reference, Philanthropy Northwest’s region includes Alaska, Idaho, Montana, Oregon, Washington, and Wyoming). The rest of the country should know that the Northwest covers a very diverse spectrum of philanthropies that come from and support a variety of communities. For examples of how the area’s work has been evolving, I recommend Philanthropy Northwest’s 2024 Annual Report, as well as our new report discussing lessons learned from a cohort of community foundations, identity-based funders and United Ways.

What advice do you have for the Philanthropy Project on making the case for DAF reform?

I think DAF reform is a microcosm of a larger conversation concerning wealth inequality, as well as concerns around the accountability of moving resources in the public and charitable sectors. Most people might not know exactly what a DAF is. However, they know that the rich have too much power while most people struggle to make ends meet. They would like to see more resources reach their communities. They want these resources to be spent in an accountable manner in alignment with their communities’ needs.

We should make the case that DAF reform is one of many ways to help make that happen.

Is there a question we didn’t ask, but should have?

None that I can think of! We’re pleased that the Philanthropy Project exists, and thank you for the chance to lend some support.