Wealth gap, top-heavy philanthropy undermining charities, study finds

Wealth gap, top-heavy philanthropy undermining charities, study finds

Widening wealth inequality is undermining the independence and sustainability of the nonprofit sector as charities increasingly find themselves relying on mega-gifts from the wealthiest donors, a report from the Institute for Policy StudiesProgram on Inequality and the Common Good and its Inequality.org project argues. 

According to the report, Gilded Giving 2020: How wealth inequality distorts philanthropy and imperils democracy (53 pages, PDF), the share of U.S. households giving to charity dropped from 66 percent in 2000 to 53 percent in 2016 — mirroring declines in key economic indicators such as employment, household income, and homeownership rates. At the same time, the percentage of total charitable tax deductions claimed by households making more than $1 million increased from 12 percent in 1995 to 33 percent in 2015. Mega-gifts — defined by Giving USA as gifts equal to at least 0.1 percent of total U.S. giving — accounted for $1.2 billion, or 0.5 percent of all individual giving in 2012, but by 2019 had nearly tripled, to $3.2 billion, or about 1 percent of all individual giving.

The study also found that between 2005 and 2019 the number of private foundations increased 68 percent, while total foundation assets more than doubled, from $551 billion to $1.2 trillion. Contributions to donor-advised funds also jumped, from $20 billion in 2014 to more than $37 billion in 2018, or 12.7 percent of all individual giving, up from 4.4 percent in 2010.

The shift from broad-based support by a wide range of donors to top-heavy philanthropy dominated by a handful of extremely wealthy individuals and foundations — a trend accelerated by the 2017 Tax Cuts and Jobs Act — poses risks for charities and the nonprofit sector, the report's authors warn, including increased volatility and unpredictability in funding, the need to focus almost exclusively on cultivating major donors, a concentration of funding in a relatively small number of organizations and projects favored by major donors, and the potential for mission distortion. Risks to the public include the warehousing of wealth against a backdrop of urgent needs and an increasingly undemocratic and unaccountable philanthropic sector.

Based on an analysis of giving by billionaires who have signed the Giving Pledge, the report found that the combined wealth of the sixty-two current U.S.-based signatories who were billionaires when the campaign was launched in 2010 has nearly doubled, from $376 billion to $734 billion as of July 18. Despite their pledge to donate at least half of their fortunes to charity in their lifetimes, however, fifty-one of those billionaires have seen their net worth increase over the past decade. That group includes Mark Zuckerberg (1783 percent), John Doerr (416 percent), Marc Benioff (400 percent), Kenneth Langone (288 percent), and Stephen Schwarzman (245 percent). Since COVID-related lockdowns in the United States were first mandated on March 18, the collective wealth of the hundred U.S. Giving Pledgers has surged from $758.3 billion to $971.9 billion. If the signatories are to fulfill their pledges, the report's authors note, they will have to dramatically accelerate their giving, and even then most of their wealth is likely to end up in a family foundation or DAF instead of supporting the work of charities.

The report's policy recommendations include a three-year emergency mandate requiring private foundations to double their payout from 5 percent to 10 percent and to establish a temporary 10 percent payout requirement for DAFs, as well as long-term reform measures such as levying a wealth tax on closely held private foundations, requiring DAFs to distribute funds before their holders can claim a charitable deduction, and creating a universal charitable tax credit. 

"Although it is beyond the scope of this report, we believe the long-term trajectory of these trends will result in a shift from adequate taxation of high income and wealth to the expansion of mega-philanthropy as a method to protect private assets and interests," the authors conclude. "Government budget cuts and austerity measures will grow along with multibillion-dollar foundations. The warehousing of private fortunes will threaten equality of opportunity and basic standards of environmental protection, human dignity, and human rights."