Public policies and private foundations: payout rates and the (dreaded) excise tax

Patrick Rooney, Richard Sansing and Jon Bergdoll

Chapter 3 in Handbook of Research on Nonprofit Economics and Management, 2018, pp 62-86 from Edward Elgar Publishing

Abstract: This chapter provides an overview of private foundations and an in-depth discussion of the minimum distribution requirements for foundations. We conduct simulations under several scenarios to determine the effects of either higher payout requirements generally and/or a 2 percent supplemental payout during periods of economic downturns. These would help offset the macroeconomic and microeconomic losses during recessions. We conclude that foundations could easily sustain themselves with a supplemental 2 percent payout during recessions and that a permanent increase in rates would most likely lead to a decline in the value of the corpus over simulations of 50 and 100 years, but the likelihood of closure (asset values falling below $5000) is essentially zero for payout rates of 15 per cent or less over the next 50 years and 9 percent or less over the next 100 years. Finally, the excise tax needs to be either eliminated completely or fixed at 1 percent forever.

Keywords: Business and Management; Economics and Finance (search for similar items in EconPapers)
Date: 2018
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