I have never believed that Big Philanthropy was the solution to economic inequality. The very, very rich give money to organizations and institutions that either bestow honors on them (see: every major private university and as an example here, Zuckerberg SF General Hospital) or fit their personal interests and desires.
I remember in the 1990s a lot of environmental groups in the US suddenly developed an interest in mining policy. Nothing wrong with that; mining is a major environmental problem. But the change wasn’t driven by environmental science or grassroots community needs; it happened because a few major donors were willing to fund that work.
The donors drove the direction of political policy.
That’s what’s happening today – on a much, much larger scale.
A new report by the Institute for Policy Studies shows how philanthropy has not only become the province of the top one percent – it’s skewing public policy, undermining democracy, and cheating the government out of desperately needed revenue.
Private philanthropy is on a collision course with democracy. Without intervention, billionaire philanthropists will soon be shaping public policy in competition with local and state governments, which will be facing austerity conditions in the wake of a resurgent Covid-19 pandemic.
Top-heavy philanthropy—small-dollar donor declines combined with increasing numbers of ultra-wealthy mega-donors— poses growing risks to the independence of the nonprofit sector, the integrity of the tax system, and the health of our democracy. The giving sector is increasingly becoming a tax-subsidized province of the wealthy, who exercise considerable private power over the nonprofit sector and civic life as a whole.
Ever-greater proportions of charitable dollars are being diverted into wealth-warehousing vehicles such as private foundations and donor-advised funds, rather than going to active nonprofits serving immediate needs. A tiny group of mega-philanthropists have been exercising increasingly outsized influence over the nonprofit sector, setting up funds worth hundreds of millions or even billions of dollars dedicated to the causes that matter most to them.
The report shows that the amount of money US households have given to charity has declined by nearly 20 percent over the past 15 years. That’s not a surprise – as economic inequality has radically increased, fewer people have any money left to give away.
At the same time, charitable giving has been increasingly dominated by a very small number of people who exert outsized influence over the direction of nonprofit work: “Between 1995 and 2015, top 1 percent of income-earners went from claiming one eighth to a third of all charitable deductions.”
The philanthropic world, in other words, has become another part of the American Plutocracy – a tiny number of very rich people who are using their money, in this case tax-exempt money, to promote their personal agendas.
I’m not saying that, for example, the Gates Foundation isn’t doing great work in many cases. But the direction of that work is decided by one billionaire, Bill Gates, and the people he hires, not by a democratically elected government that uses tax money to address social problems.
Yeah, democracy in late-stage capitalism is filled with problems, and the money doesn’t go to the right places. But do we really want to say that our billionaire overlords should take its place?
Because that is what’s happening with trillions of dollars.
The very rich pay far less in taxes today than they did before 1980. And they can set up private foundations to make sure that their money isn’t taxed at all.
So instead of giving money to working nonprofits that need cash for general operations, the tax-exempt dollars are going to giant foundations that can give away money – or not:
Private foundations and donor-advised funds have both seen dramatic growth in recent years. Both of these giving intermediaries are favored by wealthy donors because of the significant tax advantages they offer. The assets of private foundations grew 118 percent over the fifteen years between 2005 and 2019, from $551 billion to $1.2 trillion. Over the same period, the number of private foundations increased by 68 percent, from 71,097 to 119,791. Donations to DAFs have increased even more rapidly, from $20 billion in 2014 to more than $37 billion in 2018—86 percent growth over just five years.
Private foundations are required by law to give away only five percent of their assets every year. Most of them see their assets grow by more than that number – so they get bigger and bigger, and the money they give away is just a tiny fraction of what it could be.
All of this distorts the economy and damages social priorities.
The report notes:
Increasing inequality in giving poses significant implications for the practice of fundraising, the role of the independent nonprofit sector, and the health of our larger democratic civil society. Risks to the public include the warehousing of wealth in the face of urgent needs; an increasingly unaccountable and undemocratic philanthropic sector; the rise of tax avoidance philanthropy; self-dealing philanthropy; and the increasing use of philanthropy as an extension of power and privilege protection.
Risks to charitable independent sector organizations include increased volatility and unpredictability in funding, making it more difficult to budget and forecast income into the future; an increased need to shift toward major donor cultivation; and an increased bias toward funding heavily major-donor-directed boutique organizations and projects. The increasing power of a small number of donors also greatly increases the potential for mission distortion.
The report suggests that, in this emergency, Congress increase the amount that foundations have to give away every year from five percent to ten percent. That alone would pump $200 billion into the economy. It also suggests that donors should get a tax break only when the money is actually donated to an organization doing public-interest work, not when it’s “warehoused” in a big foundation that pays out on a tiny fraction of its tax-deductible wealth.
In the end, the report suggests, taxing the very rich and spending that money based on democratically determined community needs makes a lot more sense than giving the very rich tax breaks and letting them decide what’s important to society.