A decade ago, Bill Gates and Warren Buffett did an important thing. They organized the Giving Pledge to inspire their fellow billionaires to donate more money to charity.

On 4 August 2010, the first group of billionaires announced their intention to give away over half their wealth to charity. Over the last decade, they’ve been joined by many more.

A decade later, however, two obvious problems have emerged.

First, billionaire wealth has expanded at a phenomenal rate. Of the 62 living Pledgers who were billionaires in 2010, their personal wealth has increased by 95%, from $376bn to $734bn in 2020 dollars.

They’d pledged to give away half. Instead, their wealth has nearly doubled.

Not even the pandemic has slowed them down. From March to July 2020, the 100 US billionaires who are currently part of the Giving Pledge saw their total wealth increase $214bn – an increase of 28% in just four months.

Many have stepped up to give during the pandemic. But their giving is not keeping pace with their exploding wealth.

This leads to the second problem: in all likelihood, most of what they give away won’t go to on-the-ground charities, but to private family foundations often controlled by wealthy heirs and their advisers. Instead of supporting charities on the frontlines of problem solving, these billions end up sitting in tax-advantaged intermediaries.

You may be thinking: it’s their money, they can do with it as they choose.

But the notion that philanthropy is a private preserve, apart from the government, is a myth. The wealthier the donor, the more advantaged the charitable tax deduction becomes. For every dollar donated by a billionaire to their private foundation, we the taxpayers chip in as much as 74¢ on the dollar in lost tax revenue.

For this reason, the philanthropy of billionaires is at best understood as a public-private partnership. We taxpayers have a legitimate interest in ensuring these funds serve the public interest.

Through this lens, it is troubling that so much wealth is sequestered in private foundations and donor-advised funds – and that these are the fastest-growing areas of the giving sector. There is over $1.2tn parked in private foundations and an estimated $120bn in donor-advised funds.

Private foundations are required to give away – or “pay out” in charity lingo – at least 5% of their assets each year, ostensibly to working charities. But administrative overhead, salaries and gifts to other tax-advantaged funds are counted toward this 5%. And many larger foundations treat this 5% as a ceiling, not a floor.

Donor-advised funds, or DAFs, have no mandated payout at all. The donor takes a generous tax break when placing funds into the DAF, but the DAF does not legally have to pay out – ever. Donors can set up a DAF and pass it on to their grandchildren, who may or may not ever share the money with active charities.

Private philanthropy has always been a form of power for wealthy donors. But as wealth inequality has exploded in recent decades, it’s concentrating that private power in even fewer hands – all subsidized by public taxpayers.

This has troubling implications for charities, who are forced to cater to a smaller number of mega-donors, and our democracy. As governments at all levels face growing austerity from the Covid-19 pandemic and recession, billionaire philanthropy may well fill the vacuum for local services and institutions. But unlike local taxpayer dollars, billionaire foundations don’t answer to voters.

So what can be done?

The first step is for Congress to pass an “emergency charity stimulus”, a three-year mandate to increase the payouts of foundations and donor-advised funds. This would move $200bn to frontline charities doing urgent work during the pandemic – without costing taxpayers another dime, since these funds have been “paid for” by tax deductions.

But ultimately we need a movement to democratize charitable giving. We should reorient the rules governing taxes and charity to discourage the concentration of power and decision-making. Taxpayers should not subsidize private fortresses of wealth and power that will exist for generations, controlled by the same families and their professional advisers.

The implication for Gates, Buffett and the other Giving Pledgers is clear: give more money – not to private foundations, but directly to working charities and community-controlled foundations. Ten years from now, on the 20th anniversary of the Giving Pledge, the private family foundation should no longer exist.

 

Teaser photo credit: By World Economic Forum – originally posted to Flickr as Bill Gates – World Economic Forum Annual Meeting Davos 2008, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=3782913