If we were to increase annual percentage of the endowment foundations need to to payout from 5% to 10%, then endowments would be spent down because it exceeds usual investment returns.
I agree that this is a possible outcome (perhaps there would be loopholes in the law, foundations and DAFs would pursue other investment strategies like using leverage to achieve higher returns, or philanthropists would shift funds into alternative non-regulated entities), and if spending down endowments is the outcome, this certainly seems like it would have major ramifications on the entities subject to this regulation.
If these regulations persist in the long-run, I would imagine that patient philanthropy would transition to storing funds in other entities, like corporations, that are not subject to these regulations. Entities like corporations are not tax advantaged, so funding going into those organizations would be fully taxable. Investment gains might be fully or partially taxable (current regulations state that C Corps can only write off 25% of their total income for donations). A C Corp could switch to directly paying for products/services to avoid the limit of write-offs, or make those “purchases” through other entities like charities, so there would probably be ways to make the investment income non-taxable. Either way, the primary mechanism of impact for patient philanthropy—the effect of compounding interest over many years—would be preserved even if regulation to increase disbursements perpetually into the future were to pass.
If we were to increase annual percentage of the endowment foundations need to to payout from 5% to 10%, then endowments would be spent down because it exceeds usual investment returns.
I agree that this is a possible outcome (perhaps there would be loopholes in the law, foundations and DAFs would pursue other investment strategies like using leverage to achieve higher returns, or philanthropists would shift funds into alternative non-regulated entities), and if spending down endowments is the outcome, this certainly seems like it would have major ramifications on the entities subject to this regulation.
If these regulations persist in the long-run, I would imagine that patient philanthropy would transition to storing funds in other entities, like corporations, that are not subject to these regulations. Entities like corporations are not tax advantaged, so funding going into those organizations would be fully taxable. Investment gains might be fully or partially taxable (current regulations state that C Corps can only write off 25% of their total income for donations). A C Corp could switch to directly paying for products/services to avoid the limit of write-offs, or make those “purchases” through other entities like charities, so there would probably be ways to make the investment income non-taxable. Either way, the primary mechanism of impact for patient philanthropy—the effect of compounding interest over many years—would be preserved even if regulation to increase disbursements perpetually into the future were to pass.