We are now treated to regular announcements about benevolent billionaires pledging to share their wealth. Amazon founder Jeff Bezos, for instance, recently told CNN that he would be giving away the majority of his $124 billion fortune in his lifetime. The truth is, pledges like these may take years, decades or even generations to reach their nonprofit destinations—if ever.
While billionaires do of course still donate to charities, grand philanthropic pledges are often fulfilled by dumping funds into family foundations or donor-advised funds (DAFs) that could exist in perpetuity. Some 30% of charitable donations now flow through intermediaries like these, outpacing direct donations to many traditional charities. Billionaires may claim enormous tax deductions for parking funds in these intermediaries. But there’s little to no guarantee that money will ever make it to working charities. Foundations are only required to pay out 5% of their assets each year, and most dole out just slightly more than this minimum. DAFs face no annual payout requirement at all. Lax reporting requirements make it difficult to assess their activity, but recent reports suggest that median DAF payouts are shockingly low.
Taxes subsidize this system. For every dollar a billionaire gives to charity, the taxpayers chip in up to 74 cents of that dollar in lost federal tax revenue as donors claim deductions in their income, estate and capital gains taxes, among others. That makes it even more outrageous that much of this money may never reach a real, on-the-ground charity.