This week, we released a crucial new reportrevealing the true cost of billionaire philanthropy to taxpayers, the nonprofit sector, and our society.
Thereport comprehensively details how the ultra-wealthy use charitable giving to avoid taxes and exert influence, while ordinary taxpayers foot the bill. Some ultra-wealthy givers make genuine efforts to give back. But others appear to use charity to burnish their public image, amplify their political voice, and protect their assets.
As communities prepare to enter the season of giving and highlight charitable donations as a critical way to support communities’ urgent needs, thisreportreveals how the wealthiest donors in our society give differently than ordinary donors.
The ultra-wealthy claim the lion’s share of the hundreds of billions in annual tax subsidies to incentivize charitable giving.
Yet most donations by the ultra-wealthy flow to private foundations and donor-advised funds (DAFs), intermediaries controlled by these donors. As our report shows, 41 cents of every dollar of individual giving in 2022 went to one of these intermediaries.
At best, this delays the flow of funds to working nonprofit charities on the ground. At worst, it leads to a warehousing of charitable funds.
Private foundations are only required to payout 5 percent of assets annually to charities and donor-advised funds (DAFs) have no payout requirement. To make matters worse, some wealthy donors are playing shell-games to fulfill these minimal obligations.
The most charitably-inclined billionaires in the U.S., those who have signed the Giving Pledge to donate half their wealth during their lifetime, are not immune from these trends. At their current pace, most funds will end up in perpetual family foundations, not in the hands of active charities.
As wealth concentrates in fewer hands, the imbalance is having a corrosive impact on our nonprofit sector. U.S. nonprofit charities are currently experiencing a transition from broad-based support across a wide range of donors to an increasing reliance on a small number of ultra-wealthy people, a trend we’ve named“top-heavy philanthropy.”
The missing voice in the philanthropy discussion is the U.S. taxpayer, who subsidizes the private giving of billionaires to the tune of several hundred billion a year. We should be alarmed at the ways billionaires use philanthropy as a taxpayer-subsidized extension of their private power and influence. And we need to update the laws governing philanthropy to keep the financial industry from capturing it and turning it into another haven from public accountability for the wealthiest people in our society.
Our key findings:
Wealthy donors receive the biggest tax breaks from philanthropic giving.
Millions of U.S. donors give directly to local charities without any reduction in their taxes.Less than ten percent of households use the charitable deduction. Wealthy donors, in turn, receive most of the taxpayer subsidies for charitable giving. The taxpayer subsidy for charity is hundreds of billions of dollars –and the wealthier the donor, the greater the taxpayer subsidy.
- The direct taxpayer subsidy for charitable giving was $73.24 billionin 2022 in known personal and corporate charitable deductions, and at least $111 billion including other estimated reductions in taxes. But the true subsidy may actually be several hundreds of billions a year if we were able to include the full cost of estate and capital gains tax reductions.
- The wealthier the donor, the greater the taxpayer subsidy for their donation. For every dollar a billionaire donates to charity, taxpayers chip in74 cents in lost revenue. This is because wealthy donors not only reduce their income tax obligations, but also capital gains, estate and gift taxes.
We can’t ignore the rise of donor-controlled intermediaries.
Low and middle income givers are more likely to give directly to local nonprofit charities in their community including youth centers, food banks, and organizations addressing poverty, social needs, arts, and environmental issues.
In contrast, the report finds that wealthy donors are more likely to contribute to their own private foundations and donor-advised funds (DAF), intermediaries that they continue to control. These donors receive immediate tax reductions in the year of their donation, but as this report shows, the funds may take decades to reach working charities, if ever.
An estimated 41 cents of every 2022 individual donation going to charity went to either a private foundation or DAF, up from 37 percent in 2021.In 2022, 27 percent of individual donations went to DAFs, up from 22 percent in 2021. In 2022, 14 percent of individual donations went to private foundations.
“One of the main drivers of DAF growth is the financial industry’s aggressive marketing of DAFs for their considerable tax benefits, secrecy, and non-existent payout rate,” observed Chuck Collins, author of the report.
Over the past five years, the median payout rate for private foundations has hoveredbetween 5.2 and 5.6 percent. And this payout includes compensation to trustees, overhead, and donations to donor-advised funds (DAFs) which have no payout.
Donations to DAFs are now more than a quarter of all U.S. individual charitable giving. The$85.5 billiondonated to DAFs in 2022 made up a full27 percentof the $319 billion in individual giving that year, up from $73.34 billion and 22 percent in 2021.
The largest DAF sponsors now take in more money each year than our largest public charities.By 2021, seven of the top ten recipients of charitable revenue in the country were DAF sponsors, including the four largest affiliated withFidelity, Schwab, Vanguardand theNational Philanthropic Trust.
A significant amount of DAF grants go to other DAFs. We found$2.5 billionin grants going from national donor-advised funds to other national donor-advised funds in 2021 alone.
Giving Pledgers need to pick up the pace.
The report analyzes the progress of theGiving Pledge, founded in 2010 by Bill Gates and Warren Buffett, that has inspired over 220 billionaires to pledge to donate half of their wealth during their lifetime. The report found that while a handful of donors are moving funds in a timely manner, most have seen their wealth dramatically increase over the fourteen years since the start of the Giving Pledge and need to pick up the pace of giving.
The report suggests that most of these pledges will be fulfilled by donations to private family foundations and donor-advised funds, delaying the public benefit of the taxpayer subsidized donations. In the worst case, some Pledgers have used their philanthropy for self-serving purposes, such as taking out loans from their foundations or paying themselves hefty trustee salaries.
The73 living U.S. Giving Pledgerswho were billionaires in 2010 saw their wealth grow by138 percent,or224 percent when adjusted for inflation, through 2022. Their combined assets increased from $348 billion in 2010 to $828 billion over those twelve years.
Of these 73 people,30of them have seen their wealth increasemore than 200 percentwhen adjusted for inflation. Those with the greatest growth includeMark Zuckerberg and Priscilla Chan(1,382 percent),Dustin Moskovitz and Cari Tuna(1,166 percent),Elaine and Ken Langone(755 percent),Arthur M. Blank(739 percent), andBernie and Billi Marcus (714 percent).
Of the $12 billion in identifiable gifts of over $1 million that the Giving Pledge signers donated to charity in 2022,68 percent— more than $8 billion — went either to foundations or to DAFs.
The action of some billionaire donors raise concerns that what began as a civic-minded initiative to spur generosity is instead serving to concentrate private wealth and power at taxpayer expense.
We’ve got some ideas on how to reform charitable giving and ensure more money ends up in the hands of actual active charities, where it’s needed most.
- Implement a payout requirement for donor-advised funds
- Raise the minimum payout rate requirement for private foundations
- Prevent grants to DAFs from counting towards foundation payout
- Require sponsors to report on DAFs on an account-by-account basis
- Implement a universal charitable tax credit for non-itemizers
We have to make sure that the tax breaks we underwrite are actually funding charities actively working for the public good. Hopefully, this report will encourage policymakers, the media, and the public to look at the charitable pronouncements of billionaires with more scrutiny.
