Don’t wait for billionaire philanthropy to fix America

If your house is on fire, don’t wait for the billionaire bucket brigade.  The same is true if you’re a society facing a pandemic, extreme wealth inequality, an eroding democracy, climate change or a national racial divide. 

Each year, the Chronicle of Philanthropy publishes the “Philanthropy 50,” a list of the biggest donors of the year and an indicator of the giving priorities of America’s ultra-wealthy class. This year’s feature story is titled, “What Pandemic?” and summarizes, “Despite the continuing Covid threat and racial-justice problems, the nation’s wealthiest donors have largely returned to old standbys — handing out big sums to universities, medicine and their own foundations.”   

Of the 50 top donors, most gave what could be characterized as legacy gifts: donations to universities and major medical centers that will likely go toward buildings and endowments and are made with an eye toward attaining some sort of edificial immortality.

From these giving priorities, you would never know we were living through a global pandemic, an ecological crisis, spiraling wage and wealth inequality or a national reckoning on racial inequity.

In fact, 14 of the 50 biggest donors gave mainly to their own private foundations or donor-advised funds (DAFs). This includes $15 billion to the Bill and Melinda Gates Foundation and a $1.2 billion donation by William Ackman and Neri Oxfam to their three family foundations. 

Donations to a person’s own charitable intermediary should not be counted as gifts, since the money is still under their control and hasn’t yet gone to an active charity. Forbes’s list of top donors accounts for this and only includes donations that flow to working charities, not foundations or DAFs. 

Wealthy giving preferences have resulted, even during the pandemic, in a warehousing of charity dollars in private foundations and DAFs now estimated to be over $1.1 trillion.  This is part of the larger problem of top heavy philanthropy: Over the last few decades, donations from low-and middle-income donors have steadily declined, and almost all growth in charitable giving has come from ultra-wealthy donors.   

Wealthy donors love to give to the foundations and DAFs that they control. Roughly 28 percent of charitable donations now go to such intermediaries.

The problem is that a private foundation is only required to give away 5 percent of its assets a year, while overhead, salaries and program expenses can be counted toward this “payout” rate. And DAFs have no mandated payout at all. These design flaws enable donors to take immediate deductions in the year they transfer funds to their intermediary, while those dollars may sit warehoused for years before flowing to on-the-ground charities. 

There have been refreshing exceptions to these trends.  MacKenzie Scott, former wife of Jeff Bezos, has aggressively moved to, in her words, “empty the vault,” distributing over $6 billion during the pandemic directly to grassroots racial justice groups and COVID-19 relief efforts. Similarly, outgoing Twitter CEO Jack Dorsey has aggressively and transparently given billions for COVID-19 relief and poverty alleviation. But they are unfortunately exceptions to the larger trend.

We should be alarmed because, as taxpayers, we subsidize the giving whims of the ultra-wealthy. For every dollar a billionaire donates, we the taxpayer chip in 74 cents of that dollar in lost tax revenue. The wealthier the donor, the bigger their tax subsidy, since these gifts not only reduce their income taxes, but also estate, gift and capital gains taxes.   So, there is a legitimate public interest in the scrutinizing the priorities of billionaire donors.

Congress should modernize the rules governing charity to increase the flow of giving to working charities and to discourage the warehousing of billions in donor-controlled intermediaries. Some members have introduced legislation to do this with the Accelerate Charitable Efforts (ACE) Act, but it doesn’t go far enough. 

Lawmakers should double the payout rate for private foundations to 10 percent and require DAFs to have a payout rate. They should increase the donation tax credit for low- and middle-income donors. And they should establish a lifetime giving cap, so the ultra-wealthy don’t get to entirely opt out of paying taxes.

Our society and our vibrant independent nonprofit sector benefit from the generosity of individuals.  But we should encourage charitable giving by people of all incomes, not just the wealthy. And we should be vigilant to ensure that philanthropy doesn’t become another extension of the power and influence of the billionaire class.

Chuck Collins directs the Charity Reform Project at the Institute for Policy Studies where he coedits Inequality.org. He is author of “The Wealth Hoarders: How Billionaires Pay Millions To Hide Trillions.”