How wealth inequality is warping the world of philanthropy

1.2 trillion estimated to be sitting in private foundations right now, during the pandemic, is not necessarily going to move to nonprofits.

Charitable giving has been on the rise in recent years—in 2019, U.S. charities received a record $449.6 billion—and most of that philanthropy is coming in the form of big donations from a few wealthy donors. While that may seem like a good thing, especially as the top 1% keep getting richer, a new report shows how this “top heavy” giving exposes underlying issues with foundation requirements, our tax system, and who has the power to influence the world through philanthropy.

Take a look at The Giving Pledge, a commitment by a group of billionaires, led by Bill Gates and Warren Buffett, to give away at least half of their wealth before they die. It was first launched in August 2010, and 10 years later, the combined wealth of the 62 signatories who were billionaires at that time has nearly doubled, from $376 billion to $734 billion.

That’s not to say they haven’t been giving money away, but that their wealth is growing more quickly than they are giving, because of the nature of our economy, “where the rewards are wired to flow to the top,” says Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies and coauthor of the new report, titled “Gilded Giving 2020: How Wealth Inequality Distorts Philanthropy and Imperils Democracy.” They can’t give it away fast enough.

And when they do give money away, not all charitable giving is equal. Wealthy donors have increasingly turned to private foundations anddonor-advised funds (which let the wealthy earmark money for charity—and reap the tax benefits—before they actually give it to an organization). Between 2005 and 2019, the assets of private foundations grew 118%, per the report, from $551 to $1.2 trillion, and the number of private foundations increased from 71,097 to 119,791. Donations to donor-advised funds have gone up from $20 billion in 2014 to more than $37 billion in 2018—an 86% increase over five years.

“The richer you are, the more likely you give through an intermediary,” Collins says. “You create a private foundation, which only mandates that you give away 5% of your assets a year, or you put your money into a donor-advised fund, you take the tax break, and there’s no mandate that that money move to working charity. You can just sit and warehouse it.”

That means that $1.2 trillion estimated to be sitting in private foundations right now, during the pandemic, is not necessarily going to move to nonprofits. The Institute for Policy Studies is recommending that Congress implement an Emergency Charity Stimulus, which would be a three-year mandate requiring private foundations to double their payout from 5% to 10%, and require a temporary 10% payout for donor-advised funds. This could move about $200 billion into charities on the front lines, per the report, without increasing taxes or adding to the deficit.

Some donors do give directly to nonprofits, like MacKenzie Scott, who recently donated about $1.7 billion to a variety of organizations. Collins applauded her approach, which did not park money in a private foundation or donor-advised fund (“that we know of”), but he noted that all that giving also helped her, by giving her a tax dedication and reducing her total capital gains and estate value, which lowers the amount of taxes she’ll have to pay on her wealth. On average, every dollar a billionaire gives to charity means up to 74 cents in lost tax revenue—74 cents the public has to subsidize.

“Philanthropy is not a substitute for a fair tax system,” Collins says. “We sometimes forget that. Maybe we wouldn’t need as much charity if we had a more meaningful, economically just society.” Philanthropy can also be a distraction, he adds, from the other work that needs to be done. And when the wealthy dominate philanthropy—the top 1% income earners are responsible for a third of all charitable giving—they have the power to pick and choose what nonprofit work is funded, what issues are worth being solved, and what think tanks can carry out their research.

“Philanthropy is power,” says Collins. “It’s becoming an extension of the private power of wealthy people. These are the people who already dominate our politics and election and dominate ownership of enterprises and media, and their philanthropy is another extension of influence.”

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