Where the Tips of the Wings Meet

Getting to the Heart of Charitable Tax Exemption

Two months ago, US media and sector pundits were going after foundations with sharp teeth (search the archives of Inside Philanthropy, Chronicle of Philanthropy, LinkedIn). Accusations of silence, complicity, and inactivity dominated headlines. But now, the tone has shifted. Suddenly, foundations are being celebrated for stepping up, pledging more, or, in rare cases, spending down.

It’s whiplash. From zero to hero, in less than a quarter.

I argued elsewhere that maybe they were just getting their bearings. But the Q1 critique was loud.

But here’s the rub: in praise or critique, many of these media narratives conflate two very different questions:

1. Should foundations spend more annually? (i.e., higher disbursement quotas)

2. Should they spend from the principal? (i.e., spend down the endowment, potentially sunset)

These are connected but distinct questions. One about generosity within permanence, the other about giving up permanence itself.

In Canada, we’ve had our own debates about disbursement quotas, notably the 2022 federal increase from 3.5% to 5% for larger charities. But even that debate skirted the deeper question: Why do we offer tax exemption in the first place? What social value do we expect in return? The UK, now entering its own debate on disbursement (with no quota currently in place), offers a compelling contrast. Should it follow the North American model, or pursue a broader measure of total impact, including grants and investments?

At the center of these debates, whether about how much is spent or when its spent, is a more fundamental concern that both sides are circling.

Two Wings, One Core Question

Progressive critiques of philanthropy emphasize inequality, power imbalances, and the colonial origins of wealth. They call for wealth redistribution, decolonized practices, and community-led grantmaking. On this side, “spend down” isn’t just a financial model; it’s a moral imperative.

Conservative critiques come from different places but often land in similar territory. Why, they ask, do wealthy institutions enjoy tax-exempt status without sufficient transparency, measurable outcomes, or alignment with broad public goals? We see this play out in attacks on elite universities, including the recent threats against Harvard, where the current administration took aim, questioning the legitimacy of the institution's charitable status and threatening its tax-exempt status.

These critiques, though ideologically distinct, share a common concern:

What is the public value of a tax-exempt institution?

That’s the heart of the matter.
That’s where the tips of the wings meet.

Stop Applauding the Proxies

It's not wrong to cheer when foundations increase their giving or question endowments that balloon while crises rage. But neither should those be the endpoint. When media or sector narratives fixate solely on disbursement rates or spend-down models, they miss the central issue. These are proxies; symbols that stand in for something deeper.

The real test is not what foundations spend, but why they exist.

This is the live challenge. Tax exemption is a public subsidy. Foundations and other charitable entities receive benefits, including deductibility for donors, tax-free investment gains, and a cloak of legitimacy. The return on that subsidy should be clearer than ever.

Three Sentences or Less

So, can your organization answer the question?
How does your tax-exempt organization support civil society?

Not in ten pages.
Not in a strategy document.
In three sentences or fewer.

• What is your purpose?

• What is/are your approach(s)?

• What is your role?

If it can’t, then the concern isn’t just that the margins are off. The concern is that we are failing to communicate our core. And failing to communicate to the public and policymakers.

At this moment, when praise and scrutiny come from both wings, it is time to get clear and share it widely.

PS: Coming Soon
In a forthcoming post, I’ll walk through some actual math on disbursement quotas and what it would take for those to evolve into or merge with spend-down models.