Inequality has ballooned during this pandemic.
While tens of millions of Americans have lost their jobs, billionaire wealth has skyrocketed to unprecedented levels. For the first time in history, America’s 12 wealthiest people are collectively worth more than $1 trillion.
The pandemic has accelerated a trend that’s gone on for decades. During that time, growing inequality has distorted everything from elections to the cost of housing in the United States.
And, as a new report we co-authored suggests, charity has not been immune. At a time of acute charitable need, the effects could be huge.
Frontline charities are confronting a huge demand for their services. But they’re being forced to rely on a shrinking pool of donors — many of whom are stashing their money in private foundations instead of on-the-ground charities.
Years and years of stagnant wages and declining personal savings, we find, have taken their toll on the capacity of low- and middle-income households to contribute. Many still give what they can, but giving by the great mass of donors has been in steady decline for two decades.
On the other hand, as the concentration of wealth among the super-rich has grown, more of their money is going to charity. Perhaps this seems better than buying another yacht, but it actually poses enormous perils for charities — and our democracy.
In 2019, Americans gave almost $450 billion to charity, a 4.2 percent increase over the previous year. But without the rise of million-dollar mega-gifts, the giving trend line would be heading down. Instead of being supported by thousands of donors and “walking on many legs,” charities are now more dependent on a handful of wealthier donors, which can distort their priorities.
What’s more, instead of supporting active charities, these wealthy mega-donors increasingly prefer giving to their personal private foundations and donor-advised funds. These tax-advantaged vehicles, which are the biggest growth area in the entire charitable sector, are more likely to warehouse wealth than move it to working charities.
Private foundations are only legally mandated to give away 5 percent of their assets each year. And they can count their overhead expenses, including salaries and compensation to family members that serve on boards. The Conrad Hilton Foundation, for example, pays six family members $35,000 each to serve on the board — and that money counts toward its ostensibly charitable payout.
More perplexingly, donor-advised funds, or DAFs, have no mandate to share their funds with actual charities at all. The money can just sit there forever. Some donors use their DAFs to do for-profit investing they believe is socially beneficial, but this is not the same as giving it away.
All that is shocking enough. But there’s more: We as taxpayers actually subsidize donations to these wealth storage units. For every dollar a billionaire gives to their family-controlled foundation, we as taxpayers chip in as much as 74 cents in lost tax revenue.
In short, alongside our politics, lawmaking and media, this taxpayer-subsidized mega-philanthropy has become another means for the top 0.1 percent to shape society to their liking. And unless we do something about it, it’s going to get worse.
With the pandemic devastating state and local governments, authorities will have to juggle the costs of services with their shrinking tax bases. That leaves the door wide open for unaccountable, privately controlled foundations to fill the void — along with whatever strings their billionaire donors attach.
We all have a stake in this. It’s time to reform the rules governing philanthropy to boost giving by non-wealthy donors, discourage warehousing, and protect the integrity of our democracy.
In the face of the pandemic, an immediate next step would be for federal lawmakers to institute an Emergency Charity Stimulus to mandate higher foundation payouts for the next three years. A 10 percent minimum payout for foundations and DAFs, we find, could move $200 billion off the sidelines to address the COVID-19 crisis, without costing taxpayers another dime.
In the long term, we need a movement to democratize philanthropy — and the concentrated wealth that increasingly defines it.