The paradox of philanthropy

I have a short piece in the Guardian today about Bill Gates, who released his first annual letter on philanthropy earlier this week. One of the things I found admirable about the letter is that Gates has promised to increase his foundation's 2009 spending, despite the financial crisis:

In 2008, the foundation spent about $3.3bn, or 5% of its assets - the minimum requirement of the US tax authorities. But in 2009, the foundation plans to increase spending to 7% of its assets, or $3.8bn.

No one else is going to do anything like this. But it seems to me that Gates's spending increase is extremely well timed. After all, the economic crisis creates additional need for philanthropic spending, and we're all supposed to be doing our part to boost demand. It's nice when your part can be an additional half billion dollars.

Gates's move actually made me think of an evil stimulus idea: one way for the government to boost aggregate demand would be to raise the annual payout require for foundations, or to exempt administrative costs from the current payout requirement of 5 percent of assets. (Exempting administrative costs would mean that the full 5 percent would need to come from program spending.) A friend's back-of-the-envolope calculation based on these figures (adjusted for the financial crisis) indicates that each additional 1% of foundation spending would translate into an additional $5 billion. And yes, a lot of that money is spent internationally, and $5 billion is chump change next to the stimulus bill. On the other hand, it's not chump change next to just about anything else. 

But the idea is evil-sounding and could never go anywhere. A proposal to exempt administrative costs actually comes up fairly often (and is a decent idea for several reasons), but only comes up when the markets are doing well and foundations' endowments are growing far faster than the IRS requirement can nibble away. When the market suffers no one proposes it. I don't know how general this point can be, but in this case the political cycle seems unhelpfully out of tune with the business cycle.