When Mega-Donors Dominate Charitable Giving, Democracy Pays the Price

Wealth inequality distorts giving sector, posing risks to democracy and integrity of tax system

SOURCE:  Institute for Policy Studies, via CommonDreams.org, 2020-07-29

  • The final report Gilded Giving 2020 can be found here:  html  |  local copy (html)  |  pdf  |  local copy (pdf).


    Mega-donors replace small donors and mass philanthropy, with more charity dollars.

    Warehoused in private foundations and donor-advised funds, failing to flow to working charities.

    In advance of the 10th anniversary of the Giving Pledge, founded by Bill Gates and Warren Buffett, a new report from the Institute for Policy Studies (IPS) documents a troubling trend of small donor declines with a parallel rise in wealthy mega-donors within the nation's philanthropic sector.

    The report, "Gilded Giving 2020: How Wealth Inequality Distorts Philanthropy and Imperils Democracy," finds that this top-heavy philanthropy poses considerable risks to the independence of the nonprofit sector, the integrity of the tax system, and to democracy itself. It also suggests that the 2017 tax cut and the COVID-19 pandemic will worsen this drift toward inequality in philanthropy. The report can be found here.

    "Philanthropy should not become an extension of private wealth and power for the richest 0.1 percent," said Chuck Collins, Co-author of report and Director of the Program on Inequality and the Common Good at IPS. "Congress needs to update the rules governing philanthropy to prevent abuses to the tax code and protect our democracy and nonprofit sector."

    "The Giving Pledgers set out in 2010 to give away half their wealth and instead their assets have doubled," said Collins, citing one of the report's findings. "By giving $1.7 billion directly to 116 charities, MacKenzie Scott (Jeff Bezos) has modeled what Giving Pledge billionaires should be doing with their wealth. They should give it directly to working nonprofit charities and not to their own perpetual family foundations or donor-advised funds."

    While overall giving to charity has grown over the last several decades, the report says that trend masks the growing inequality in charitable giving. Findings include:

    The Giving Pledge, founded by Bill Gates and Warren Buffett, is a case study of top-heavy philanthropy. On August 4, 2010, 40 billionaires pledged to give away at least half their wealth before their death. But the growth in billionaire wealth has largely outstripped their capacity to give in a timely way. The "Gilded Giving 2020" report includes a preview of data from a forthcoming larger analysis about the impact of the Giving Pledge. Among these findings:

    The preliminary analysis in the report reveals two troubling concerns related to the Giving Pledge:

    "The original proposition was in exchange for a tax reduction, the donor gives up dominion over their money and it flows to a charitable purpose," said Helen Flannery, report co-author. "Why should taxpayers subsidize perpetual private foundations that give away the mandated minimum each year and chew up millions in overhead? Why should donors get substantial tax reductions for giving to donor-advised funds (DAF) with no mandate that funds flow to working charities?"

    Report authors point to the Conrad Hilton Foundation as an example of a perpetual foundation that is an inefficient use of taxpayer subsidies. The Hilton Foundation has $2.8 billion in assets and spent $51 million in overhead to give away $101 million in grants in 2018. Over $18 million went to staff compensation and fees to six family-member trustees, who received $35,000 a year to serve on the board.

    The report points out that risks to the public include:

    Risks to charitable independent sector organizations include:

    The report recommends a number of solutions.

    Immediate Action: Congress must implement an Emergency Charity Stimulus, a three-year emergency mandate to require private foundations to double their payout from 5 percent to 10 percent; establish a temporary 10 percent payout requirement for donor-advised funds that have no mandate. This would move an estimated $200 billion off the sidelines and into front-line working charities without increasing taxes or adding to the deficit.

    Charity Reform Agenda: Rules governing the giving sector have not been meaningfully modified since 1969, a period of relative equality in the U.S. The modernization reforms should aim to:

    To further these larger goals, the rules governing philanthropy should be overhauled to maximize the public good in these ways:

    Proposed reforms include:

    The final report, Gilded Giving 2020, can be found here:  html  |  local copy (html)  |  pdf  |  local copy (pdf).


    Gilded Giving 2020

    SOURCE:  Inequality.org, 2020-07-28

    The final report, Gilded Giving 2020, can be found here:  html  |  local copy (html)  |  pdf  |  local copy (pdf).

    Summary

    The growing concentration of wealth and power is distorting philanthropy and imperiling our democratic institutions. 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.

    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.

    The first edition of this periodic report,Gilded Giving 2016, drew attention to the risks posed to the autonomy of the nonprofit sector -- not to mention our democracy -- by the growing concentration of wealth and philanthropic power being held in fewer hands.

    At that time, charitable revenue in the United States was already growing at a rapid pace. By the release of Gilded Giving 2018, giving had been on a strong upward trajectory for nine years, since the end of the 2007-2009 recession. In both reports we raised concerns that these unprecedented levels of giving masked a troubling trend: that charity was becoming increasingly undemocratic, with organizations relying more and more on larger donations from smaller numbers of wealthy donors while receiving shrinking amounts of revenue from donors at lower-and middle-income levels. And we wrote that these trends did not bode well for the sustainability of the charitable sector.

    Since 2018, philanthropic giving has only become even more top-heavy. 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. And, all the while, broad-based charitable giving from low-and middle-income households has continued to shrink.

    Into this already precarious situation have entered two new existential threats to the nonprofit sector. The first of these was a sweeping tax reform bill which was passed by the U.S. Congress in late 2017 and took effect in 2018. The second is the twin crisis of the COVID-19 pandemic and economic recession that we are grappling with now.

    Although we don't have long-term data, it is evident that the tax changes and, in particular, the pandemic have already significantly reduced charitable giving. It is true that nonprofits with missions directly related to pandemic relief have received increased support over the past several months. And groups focused on racial justice have seen significant influxes of giving following the killing of George Floyd in May 2020 and the activism it has precipitated. But many more nonprofits are struggling to stay afloat.

    Diminished giving threatens to exacerbate philanthropic inequity even further -- at a time when the demand on charities is increasing. This is not the time to discourage broad philanthropic participation, or to hoard charitable revenue in wealth-preservation vehicles. Fortunately, however, there is a growing awareness-in the media, among legislators, and in the population at large-of the dangers that this situation poses, not only to nonprofits themselves, but to the nation as a whole.

    Gilded Giving 2020 focuses on the continued impact of increasing income and wealth inequality on the philanthropic sector, and how that has been amplified by both the current pandemic and the 2018tax reform package. It puts forward several possible implications of these conditions and suggests some solutions.

    Key Findings and Recommendations

    [ ... snip ... ]

    Conclusion

    Even before the COVID-19 pandemic began, growing inequities in income, wealth, and opportunity posed considerable perils to our economy, democracy, and civic life. They were already disrupting the philanthropic sector, corroding our existing systems of charitable rules, policies, and practices.

    As wealth has become concentrated in fewer hands, dynastically wealthy families have gained massive and unaccountable philanthropic power. They have stockpiled ever more billions into private foundations and donor-advised funds while bestowing news-worthy mega-donations on a few fortunate organizations. They are moving away from unfettered, no-strings-attached giving and toward increased donor control over organizations, and are blurring the lines between private investment and public benefit. And, all the while, broad-based charitable giving from low-and middle-income households has continued to shrink.

    It is too early to take the full measure of the effects of the COVID-19 pandemic, both on our society at large and on the charitable sector in particular. But, so far, it appears to be adding fuel to these existing trends.

    In the first months of 2020, some nonprofits with missions related to pandemic relief received outpourings of increased support. But the vast majority of others are struggling to maintain revenue, often while simultaneously seeing increased need for their services.

    While average Americans have been hit hard by the economic shock associated with the pandemic, those at the top of the wealth ladder are surviving in style. During the first three months of the pandemic, 43 million Americans filed for unemployment, while U.S. billionaires saw their assets grow by $565 billion. The Chronicle of Philanthropy reported in March 2020 that "millionaires and middle-class donors are likely to face such serious financial blows from the pandemic that charities may only be able to count on the ultrawealthy -- and that will leave many organizations in the lurch."

    As working-class, middle-class, and even moderately-high-net-worth donors find themselves less able to donate, charities will inevitably lean even harder on their most wealthy donors. Those donors will exercise ever-increasing influence over nonprofit projects, missions, and governance. And those donors will continue to benefit from significant charitable deductions, with little to no requirement that their taxpayer-subsidized contributions provide commensurate benefit to the American public.

    These trends are alarming for the health of a republic that aspires to widely held prosperity and opportunity. Although it is beyond the scope of this report, we believe the long-term trajectory of these trends will result in a shift from adequate taxation of high income and wealth to the expansion of mega-philanthropy as a method to protect private assets and interests. Government budget cuts and austerity measures will grow along with multibillion-dollar foundations. The warehousing of private fortunes will threaten equality of opportunity and basic standards of environmental protection, human dignity, and human rights.

    We now stand at a critical moment of decision, and it is unlikely that past crises will offer us much guidance. As economist and philanthropic expert Patrick Rooney says, "this is not just another hurricane or another tornado or another earthquake." So we must now be more creative and at the same time more expansive and inclusive than ever before. We can choose to continue along our current path, drifting further toward an oligarchy of wealth and power, with charitable institutions becoming an extension of this power. Or we can choose to move in a new direction: to rein in the negative aspects of top-heavy philanthropy, to improve the health of the charitable sector, and to reward the natural positive impulse of individuals and families to share the wealth.


    SOURCE:  Inequality.org, 2020-07-28

    The final report, Gilded Giving 2020, can be found here:  html  |  local copy (html)  |  pdf  |  local copy (pdf).

    Introduction

    Ten years ago, in August 2010, several dozen U.S. billionaires led by Bill Gates and Warren Buffett pledged to give away at least half of their wealth before their death. Many have donated considerable sums to charities and foundations since then. But as a group, these billionaires have seen their fortunes skyrocket in the decade since the so-called Giving Pledge was launched.

    The wealth of the billionaire class is growing so fast, it's simply outstripped their capacity to give it away. But in a time of acute charitable need, there's another growing concern in the broader charitable sector: Most of these funds may end up in family foundations and donor-advised funds that could legally exist in perpetuity -- without ever supporting real, on-the-ground charitable work.

    Over the last two decades, charitable giving has been on a steady upward trajectory. But this growth has masked a troubling trend: Charity is becoming increasingly undemocratic, with organizations relying more on larger donations from a smaller number of wealthy donors, while receiving shrinking amounts of revenue from donors at lower-and middle-income levels.

    What's more, a growing share of these high-end donations go not to the organizations that actually perform charitable work, but to tax-privileged private foundations and donor-advised funds that pay only a small percentage of their assets to support this work. These vehicles offer substantial tax benefits to donors, but may then hoard most or all of these donations in their endowments, drastically limiting what's available to on-the-ground nonprofits.

    This poses a growing risk to the independence of the nonprofit sector, the integrity of the tax system, and the health of our democracy -- and that was before two new existential threats to the nonprofit sector: the GOP tax cut package that passed in 2017, and the COVID-19 pandemic and recession, both of which are likely to concentrate more wealth at the top while hurting the ability of people of ordinary means to give.

    Diminished giving threatens to exacerbate philanthropic inequity even further at a time when the demand on charities is increasing. This is not the time to discourage broad philanthropic participation, or to hoard charitable revenue in wealth-preservation vehicles.

    Gilded Giving 2020 forward several possible implications of these conditions and suggests some solutions.

    Key Findings

  • The wealth of Giving Pledge signers is skyrocketing.

  • Philanthropy is increasingly a province of the wealthy.

  • Philanthropy is increasingly unaccountable -- and taxpayers are covering it.

    Recommendations

    We need a Charity Reform Agenda to protect charities from the undue influence of wealthy donors, prevent abuse of our tax system, incentivize broad-based giving by all segments of society, and make sure charitable dollars quickly get to the public interest organizations that need them the most.

    Currently, the private foundations consuming an increasing share of all giving are required to spend just 5 percent of their assets on charitable contributions each year. Donor Advised Funds, or DAFs, have no minimum payout at all.

    To meet the needs of the immediate crises posed by COVID-19 and the recession,

    In the longer term, the rules governing philanthropy should be overhauled to maximize the public good. Proposed reforms include:


    Additional Reading

  • [JacobinMag.com, 2021-10-11] Philanthropy Is a Scam.  The superrich often claim their philanthropy is meant to "change the world." But it's really meant to keep it exactly the way it is.


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