Dramatically Increase Dollars to Nonprofits WITHOUT Major Increases to Giving
In an era of mounting social challenges—from climate resilience to health equity—our philanthropic institutions must evolve to match the urgency of need. A bipartisan proposal in Congress to raise the mandatory payout rate for private foundations is not only timely but necessary. It is a rare moment when both sides of the aisle recognize that patriotism includes putting capital at work for the public good, not letting it sit idle in endowments.
Today, U.S. private foundations collectively hold over $1.6 trillion in assets. Under current rules, they are required to distribute at least 5 percent of assets each year. But as foundation portfolios have benefited from decades of appreciation and compounded returns, the philanthropic slack has grown too great. Arguments favoring a 1–2 percentage-point increase carry both logic and moral weight.
We must also consider donor-advised funds (DAFs), whose assets now approach $250 billion. Unlike foundations, DAFs have no legally binding payout requirement, so funds can linger indefinitely. That’s capital that could—and should—be flowing into nonprofit work today, not in some future “decide-later” limbo.
Let’s run the math. Suppose foundations raised the payout from 5 % to 6 %—a 1 percentage‐point increase. On $1.6 trillion, that means an extra $16 billion annually flowing into nonprofits (beyond baseline giving). If the mandate rose to 7 % (a 2-point increase), that would deliver about $32 billion more in grant dollars every year. These are not small sums—they’re transformative capital.
If DAFs adopted a modest 1% required payout (i.e. compelling donors or sponsoring organizations to distribute at least 1 percent yearly), that alone would inject $2.5 billion more into charities out of $250 billion in assets. Over time, as DAF assets grow, that figure would compound upward.
In total, combining a 1–2 point increase on foundations plus a modest payout floor on DAFs could unlock $20–35 billion or more in new philanthropic resources each year. That shift would reorient philanthropic capital toward mission impact rather than perpetual capital accumulation.
Opponents will argue higher payouts threaten endowment preservation or force reductions in grant size during lean years. But with prudent smoothing rules, reserve buffers, and flexibility for underperforming years, foundations can adapt without compromising their longevity. The moral imperative is clear: when communities are facing crises now, the “optional” inside the current 5% floor is no longer defensible.
The bipartisan nature of the current proposal is precisely its strength. It signals that philanthropy is not a partisan issue—it is a public good. A modest uplift in required payout rates would restore balance, shift power toward on-the-ground nonprofits, and help align philanthropic capital with urgent public need. The case is compelling, the numbers are clear, and the moment is right.
