Truth and myths about USAID and American foreign aid

Americans are woefully misinformed about not only foreign aid but also the role of the US Agency for International Development (USAID). Americans generally estimate US foreign aid at 10% or more or our Federal budget. They also probably believe that this aid is mostly in food, shelter, governance, education and medical assistance. The truth, in brief, about United States’ foreign aid:

  1. The budget for international aid in the US is less than 1% of our budget.
  2. USAID depends heavily on contractors. Contractors like Haliburton and Chemonics lead the way in profiting at the rate of hundreds of millions from these contracts.
  3. USAID has very little control of these contractors.
  4. The main aim of USAID is to support US firms.
  5. All it takes is for a pressure group, like consulting engineers for example, complaining to the legislature or the While House that they are losing work as a result of technical assistance to a country, for USAID assistance to stop.
  6. US corporations have a big advantage related to bio-engineering of agricultural products, products which are mercilessly peddled to aid-receiving countries. If you want to end your career at USAID prematurely, talk about Franken-foods.
  7. USAID does not provide the prompt assistance that is needed by most countries.
  8. For most of its existence, USAID was a non-political agency, attempting to provide assistance wherever it was needed internationally. Unfortunately, by making it part of the State Department, it has almost certainly become a much more political agency.

[Read full CDN article by Mario Salazar, former USAid worker] 

Utilizing intermediaries to simplify international giving

Few income tax treaties allow U.S. individuals to make deductible donations to foreign charities.

U.S. charitable organizations engaging in international philanthropy are subject to a number of restrictions on making grants to foreign organizations, some of these restrictions aimed at combating terrorism and increased enforcement of sanctions. Other challenges arise from the fact that the rules governing recognition of charities and the circumstances under which donors to charitable organizations may claim tax deductions or other benefits for their contributions is governed almost exclusively by the law of each separate jurisdiction.

A private foundation is subject to punitive excise taxes on grants to foreign organizations unless it either (i) obtains an equivalency determination that the recipient is the equivalent of a U.S. charity or (ii) exercises expenditure responsibility with respect to the grant. Obtaining an equivalency determination or exercising expenditure responsibility can be both costly and time consuming.

Hence, many U.S. private foundations, as well as individuals, choose to make grants to intermediaries that qualify as public charities rather than to foreign organizations directly.  A public charity is qualified as such because it raises its money from the general public and in turn donates funds and support to other organizations.

Treasury and IRS rule changes reduce barriers to global grant making

The U.S. Department of the Treasury and the IRS have recommended a significant change in the process for determining whether a foreign nongovernmental organization (NGO) meets U.S. standards for charitable giving.

In “Reliance Standards for Making Good Faith Determinations,” a document just published in the Federal Register, Treasury and the IRS have proposed regulations that lessen the administrative and financial burdens for U.S. grantmakers to engage in international philanthropy. Secretary of State Hillary Clinton announced the guidance in an address at the Clinton Global Initiative, during which she unveiled the Global Philanthropy Working Group.

The process of evaluating whether a non-U.S. NGO is equivalent to a U.S. public charity has been subject to rules that have not changed for 20 years. Secretary Clinton noted in her remarks this morning that the change clears the way for the establishment of organizations that can serve as repositories for equivalency determinations, though the proposed regulations do not specifically address this matter.

“Secretary Clinton’s announcement and the IRS guidance support a shared cross-sector vision of ways to reduce redundancy and lower costs and are a welcome signal from the government to grantmakers and their grantees,” said Rebecca Masisak, co-CEO of TechSoup Global.

Kelly Shipp Simone, deputy general counsel of the Council on Foundations, said, “While this guidance is key to reducing the burdens of private foundations in making international grants, we expect it will also serve as a guide to public charities seeking to make similar grants. The net result will be to reduce the burden on potential grantees as well.”