NCPA - National Center for Policy Analysis

Charitable Foundations' Wealth Growing

March 21, 2000

Bill Gates' $17 billion donation to the Gates Foundation last year cost taxpayers $3.4 billion in lost capital gains taxes, because foundations are virtually tax-exempt. This tax subsidy is mean to encourage giving, but some socially conscious investors question whether foundations are giving away enough of their wealth.

  • Under federal law, private philanthropies must spend a minimum of 5 percent of their assets per year -- a figure set in 1981, after a decade of poor investment returns.
  • Over the last 20 years, the Standard and Poor's 500 has returned 17.6 percent a year on investments -- tax free.
  • Thus with assets of more $330 billion, U.S. foundations have grown wealthy.

The National Network of Grantmakers recently said the 5 percent rule was too low and called on foundations to voluntarily pay out at least 6 percent of their assets in grants. And some grant makers think Congress should increase foundations' payout requirement to 8 percent.

Source: Amy Domini (Domini Social Investments) and Thomas Van Dyck (As You Sow, an environmental foundation), "Generous to a Fault," New York Times, March 21, 2000.


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