Monday, August 03, 2020

The Failure of Philanthropy

On 4 August 2010, the first group of billionaires announced their intention to give away over half their wealth to charity.  They organized the Giving Pledge to inspire their fellow billionaires to donate more money to charity. Over the last decade, they’ve been joined by many more. Private philanthropy has always been a form of power for wealthy donors. But as wealth inequality has exploded in recent decades, it’s concentrating that private power in even fewer hands – all subsidized by government tax allowances.

Billionaire wealth has expanded at a phenomenal rate. Of the 62 living Pledgers who were billionaires in 2010, their personal wealth has increased by 95%, from $376bn to $734bn in 2020 dollars. They’d pledged to give away half. Instead, their wealth has nearly doubled Their giving is not keeping pace with their exploding wealth.

Not even the pandemic has slowed them down. From March to July 2020, the 100 US billionaires who are currently part of the Giving Pledge saw their total wealth increase $214bn – an increase of 28% in just four months.

Most of what they give away won’t go to on-the-ground charities, but to private family foundations often controlled by wealthy heirs and their advisers. Instead of supporting charities on the frontlines of problem solving, these billions end up sitting in tax-advantaged intermediaries.

The notion that philanthropy is a private preserve, apart from the government, is a myth. The wealthier the donor, the more advantaged the charitable tax deduction becomes. For every dollar donated by a billionaire to their private foundation, we the taxpayers chip in as much as 74¢ on the dollar in lost tax revenue.

 It is troubling that so much wealth is sequestered in private foundations and donor-advised funds – and that these are the fastest-growing areas of the giving sector. There is over $1.2tn parked in private foundations and an estimated $120bn in donor-advised funds.

Private foundations are required to give away – or “pay out” in charity lingo – at least 5% of their assets each year, ostensibly to working charities. But administrative overhead, salaries and gifts to other tax-advantaged funds are counted toward this 5%. And many larger foundations treat this 5% as a ceiling, not a floor.

Donor-advised funds, or DAFs, have no mandated payout at all. The donor takes a generous tax break when placing funds into the DAF, but the DAF does not legally have to pay out – ever. Donors can set up a DAF and pass it on to their grandchildren, who may or may not ever share the money with active charities.

 Billionaire foundations don’t answer to anyone but the donor him or herself.

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