Op-Ed, 582 words

The Dangers of Big Philanthropy

When billionaires write charitable gifts off their taxes, the rest of us pick up the tab.

Chuck Collins

It’s the season of giving.

When you hear about a billionaire “giving back” — like Nike founder Phil Knight’s $400 million gift to Stanford, or hedge funder John Paulsen’s $400 million donation to Harvard — do you feel a warm glow?

They could’ve kept their money and bought another house or private jet, you might think. But what if you heard that the tax write-offs billionaires claim for gifts like these force the rest of us to shell out more?

Suddenly that glow doesn’t feel so warm.

Compare that generosity to what you’ve probably seen in your own community. In every small town in America — at the local convenience store or diner — there’s “the jar,” a special collection for someone who needs an operation or has faced one of life’s misfortunes.

Everyone who can chips in. No one writes it off their taxes.

Keeping score that way would be as unseemly as asking for a tax break for coaching a neighborhood youth sports team, volunteering at a shelter, or making a casserole for someone coming home from the hospital.

charitable-donation-taxes

(Photo: zimmytws / shutterstock)

The wealthy, on the other hand, use the tax deductions that come with mega-gifts to dramatically reduce, and sometimes eliminate, their tax obligations. They do it at the behest of “wealth defense advisers” — tax lawyers, accountants, and estate and trust planners — whose job is to maximize their clients’ wealth and minimize their taxes.

Those headline-making gifts you hear about may be motivated by a generous impulse, but they’re also another tool of tax avoidance — especially when it comes to donating appreciated stocks, artwork, and land, which help them avoid paying capital gains taxes.

The rest of us have a stake in these gifts. For every dollar donated to charity by a wealthy individual, everyone else effectively chips in 40 to 50 cents. When their tax bills go down, we pick up the slack to pay for public services such as infrastructure, research, and defense.

Unfortunately, this is the wave of the future. More and more, our country’s charitable giving is dominated and controlled by billionaire mega-donors, their foundations, and donor-advised funds, according to a report I coauthored for the Institute for Policy Studies.

Between 2003 and 2013, itemized contributions from people making $10 million or more increased by 104 percent. The number of private grant-making foundations, mostly established by wealthy individuals and their families, has doubled since 1993. Today there are over 80,000.

Meanwhile, charitable giving by low and middle-income donors has steadily declined, reflecting stagnant wages, declining homeownership, and growing economic insecurity by low- and middle-income families. From 2003 to 2013, itemized charitable deductions by donors making less than $100,000 declined by over a third.

This top-heavy philanthropy poses a danger to charities, too. It makes their funding less predictable and pressures them to focus on wooing a finite, relatively small number of mega-donors, rather than on doing the important work many of them do.

But the largest peril is for our democracy. Unchecked, private foundations can become blocks of concentrated, unaccountable power with considerable clout in shaping our laws and culture. They can become extensions of the power, privilege, and influence of a handful of rich families.

In this season of giving, we’ll hear plenty about billionaires “giving back” through donations to education, the arts, health, and medicine. But let’s not lose sight of the fact that you and I are subsidizing the charitable choices of the wealthy.

Maybe we’d all be better off if these billionaires just paid their fair share of taxes.

Chuck Collins is a senior scholar at the Institute for Policy Studies and a co-editor of Inequality.org. He’s the author of the recent book Born on Third Base. Distributed by OtherWords.org.

  • Vincent Duckworth

    This is an easy hypothesis. Too easy. Poking the wealthy who are also charitable because they avail themselves of tax incentives as well ignores the benefits you and the rest of us have received from philanthropy. Many breakthroughs in science, medicine, and technology would not have been possible without philanthropy. Polio springs to mind. As do many cancer treatments. As do huge advances in democracy. Yes, the wealthy do get tax advantages. The reason they get them (as do you) when they give to charity is because philanthropy sidesteps government investment (or more likely lack of) into important areas of research and benefit to humanity. It allows you and me and the billionaires to direct attention to something that government oftentimes does not feel is important but in reality is critically important. There are issues with big philanthropy but sidestepping taxes is not one of them.

  • http://www.himmelmanconsulting.com Arthur T. Himmelman

    In another comment on this article, Vincent Duckworth offers a thoughtful explanation of some of the roles and accomplishments of charitable giving and foundations in our society. While not disputing the important benefits he describes, and agreeing that “sidestepping taxes” is not the most fundamental issue to be concerned about with charitable giving, I think he does ignore the most serious issue in the practice of philanthropy in our society.

    To state the obvious, philanthropy is not a democratic form of power and
    influence. Outside of tax regulations, philanthropy’s accountability is
    restricted to private individuals and boards of directors. This contrasts to government which, while clearly far from an ideal democratic mechanism, at least is somewhat accountable to large numbers of people, the vast majority of whom are not wealthy. The weaker government is, no matter how strong the charitable sector, the greater is the harm done to those who most need support to achieve well-being.

    For example, when foundations fund efforts to reduce child poverty, they do
    not mean changing the fundamental causes of child poverty having to do with the abdication of public/governmental responsibly for eradicating it which,
    according to a 2013 report by the United Nations Children’s Fund, placed the
    United States 34th among 35 developed nations in achieving its eradication. In
    order for the United States to make significant progress in this area, it would
    require a far stronger public sector in the form of a social democracy to limit
    the inherent economic inequities in capitalism when left to its own devices.

    A strong public sector is not on the agenda of most foundations because they
    are the direct beneficiaries of the accumulation of vast private wealth.
    Instead, they serve as gatekeepers for this wealth and will not support seriously transforming the existing power relations producing it by creating enormous wealth disparities, as in child poverty, in the larger society.