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charity
Real-Life Scrooges Are Hoarding Charitable Donations in Foundations and Funds
Current rules enable wealthy donors to bank their tax break immediately, but the donated funds may remain sidelined for decades.
Dec 05, 2024
For as long as we can remember, the end of the calendar year has marked the start of America’s giving season.
The holidays that light up our darkest months also invite us to celebrate (and practice!) generosity. Food banks, youth groups, arts and civic organizations, and community service programs heavily depend on the support they receive in November and December.
Year-end giving is big for tax purposes, but many people donate without regard to whether they’ll get a deduction. In fact, fewer than 10% of donors claim a tax deduction for charitable giving.
So, big donors: You want a tax break? Make sure the money gets to a working charity—and fast.
The super-wealthy, who do take advantage of itemizing their tax returns, give differently. They give more to large hospitals and universities, where you can get your name on a building. That kind of giving can be valuable too.
But a less visible difference is crucial to recognize.
Increasingly, wealthy donors are parking money in entities they control, like private foundations and donor advised funds (DAFs). These intermediaries then, in theory, donate money to working charities.
But private foundations are only required to “payout” 5% of their assets a year to these other charities. And DAFs have no requirement to payout at all. So wealthy donors bank their tax break immediately, but the donated funds may remain sidelined for decades.
According to a new report we co-authored,Gilded Giving 2024: Saving Philanthropy from Wall Street, over 35% of all charitable donations now go to one of these two intermediaries.
There’s now $1.7 trillion parked in private foundations and DAFs—money that could be flowing to working charities in a timely way to solve problems. We estimate that by 2028, half of all donations will go to private foundations and DAFs.
As wealth has concentrated in fewer hands over the last four decades, so has this kind of dubiously “charitable” giving—a trend we call “top-heavy philanthropy.” And it’s increasingly profitable for financial advisers to the ultra rich.
Wall Street financiers promote DAFs as a way for donors to receive immediate tax reductions in the year they give, but then they sit on those funds and collect wealth management fees. The financiers have no financial incentive to ever see the money go to a mental health center, food bank, community theater, or other working charity. It’s more profitable for them to keep assets under management.
The rest of us subsidize this system. For every dollar a billionaire donates to charity, including to their own foundation or DAF, the rest of us chip in up to 74 cents in the form of lost tax revenue.
So how did we get a charity system that works for multi-millionaire donors and wealth managers but not for nonprofit charities, small donors, and the taxpaying public? In part, it’s because lobbyists for the financial industry and DAF sponsors fight vigorously against any change.
But a growing coalition of donors, nonprofit charities, and people who care about tax fairness are pushing back. They point out that lawmakers could easily fix the rules to increase the flow of charitable funding, increase transparency, and shut down the tax avoidance and self-dealing practices currently corrupting philanthropy.
The message is getting across. A 2024 Ipsos poll found that 71% of respondents believe Congress should raise the annual payout rate for private foundations and require the same for DAFs. Across the political spectrum, a clear majority of Americans believe if a donor gets a tax break, they should move the money in a timely way to a working charity.
So, big donors: You want a tax break? Make sure the money gets to a working charity—and fast. You want other taxpayers to subsidize your giving preferences? Tell us where the money’s going.
Don’t like these rules? Then don’t ask the rest of us to subsidize it. Let’s make sure the season of giving actually centers on giving, not hoarding.
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Simple Charity Reforms Could Unlock Hundreds of Billions for Nonprofit Sector
An estimated $1.7 trillion in donations, ostensibly earmarked for philanthropy, are currently languishing in private foundations and donor-advised funds—while charities like Feeding America and Habitat for Humanity are under-resourced.
Aug 09, 2024
Thanks to outdated charity tax laws, the U.S. is missing out on hundreds of billions of dollars that could flow toward housing and food security, health research, education, advocacy, and other crucial nonprofit efforts aimed at uplifting the common good—but simple reforms could unlock some of the extreme wealth that is currently "warehoused" in private foundations and donor-advised funds.
This is according to a new Institute for Policy Studies analysis that shows charitable groups currently hold an estimated $1.7 trillion in donations that are "ostensibly earmarked for philanthropy," but are able to "languish in go-between funds" while working charities remain under-resourced.
The foundations and donor-advised funds (DAFs) are able to collect tax breaks while sitting on billions of dollars thanks to provisions in the Tax Reform Act of 1969 that haven't been updated in decades, wrote IPS associate fellow Helen Flannery and associate director of charity reform initiatives Bella DeVaan at Inequality.org, a project of the organization.
"Initially, in the Tax Reform Act of 1969, private foundations were mandated to give away 6 percent of their wealth or the annual net growth from their investments: Whichever was higher," wrote Flannery and DeVaan. "Foundations' tax benefits wouldn't provide license for funds to just grow forever and ever, and they were to be consistently responsive to shifting economic reality. A decade of revisions to payout requirements reflected those principles and eventually created our flat 5% mandate. But that 5% is overdue for re-evaluation, and our elected representatives have fallen asleep at the wheel."
"It's worth imagining a future in which billions more flow towards life-saving medical cures, food security, housing access, and environmental protection through organizations that are already woven into our social fabric."
While the nation's largest foundations give charitable donations at a rate of about 5%, "their gains in the market have averaged 9% over the last five years," they explained.
In other words, said Flannery and DeVaan, the funds "are growing faster than the rate at which they give" while donations to working charities like Habitat for Humanity, United Way, and Feeding America fall behind.
The wealth of DAFs has skyrocketed by 411% in the last decade, with the funds stockpiling an estimated $230 billion in assets in 2023.
IPS noted that billions of dollars in DAF gifts have been directed as dark money contributions—whose donors "might well have second thoughts" if tax laws were reformed to require both boosted payouts and more transparency.
In its policy brief, IPS proposes reforms that would:
- Increase the minimum payout rate requirement to 10% for foundations with assets of $50 million or more, and increase it to 7% for all other foundations;
- Exclude private foundation overhead expenses above 1% of assets from counting towards payout;
- Exclude grants from private foundations to DAFs from counting towards payout;
- Require DAFs to pay out funds within five years of receipt (and provide individual account-level transparency);
- Exclude grants from DAFs to other DAFs from counting toward payout; and
- Generate excise tax revenue from intermediaries that don't meet the new requirements.
The new rules would generate more than $110 billion in additional funding for working charities each year, as well as $339 billion in donations over three years.
"It's worth imagining a future in which billions more flow towards life-saving medical cures, food security, housing access, and environmental protection through organizations that are already woven into our social fabric," wrote Flannery and DeVaan, "or organizations that could and should be with strengthened access to funding."
IPS released the analysis as legislators prepare to overhaul the tax code in 2025.
"We're hopeful that this can be a watershed moment for charity reform akin to 1969," wrote Flannery and DeVaan, along with IPS program director Chuck Collins.
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Beacons of Civilization: On Kindness in a Small Town
We fill up the soul of communities by giving what we can. It's not charity, but simply being a good neighbor.
Dec 07, 2023
Civilization has been described as “the slow process of learning to be kind.” This past summer and early fall, while I stood with peace and justice companions on the Greenfield Commons in Greenfield Massachusetts, I witnessed a pervasive culture of kindness.
Karen Boyden, with the assistance of some family and friends, folded and laid out free shoes and summer clothes and, later, fall sweaters, pants and heavier shoes on a table and blanket on the Commons. A sign welcomed all passing by to help themselves to “Dippy’s Closet.” Some who chose clothing and shoes, with the advice of friends, left with smiles; others were discreet, not wanting to draw attention to themselves.
Dippy's Closet, I learned from Karen, is a grassroots volunteer driven outreach that provides free clothing for men, women, and children with the specific goal “to attract homeless folks and individual and families who are struggling financially to purchase quality clothing.” She was first inspired to share her father's wardrobe when he unexpectedly passed in Sept of 2022; and she began donating his wardrobe to men living in a recovery home in Greenfield. “It was a great way to rechannel the pain of losing my dad into helping others,” especially seeing “so many people living on the streets of Greenfield.”
Karen estimates that, in their 9 outreaches on the Commons from June to early November, about 50 people have visited weekly and left with clothing. She has widened the circle of donors, including co-workers at the Valley Medical Group Easthampton and the Giving Circle Thrift Shop of South Deerfield.
Asked what this act of kindness for other fellow humans means for her, she replied “I want to show the folks who are struggling that we do notice, that we do care and they are valued. It is my hope that our little clothing mission might inspire others to serve the homeless. It is not that hard and so incredibly rewarding....”
Karen mentioned being inspired by the Stone Soup Café, seeing their efforts to serve folks in need. And I noticed that some who stopped by Pippy’s Closet then headed to Stone Soup Café, one long block away, for a gourmet, healthy lunch, offered each Saturday from noon to 1:30.
This pay-what-you can community cafe, whose intent is “to build a culture of belonging,” has grown since its opening in 2010 from serving 25 meals to 600 meals each week. Their Community Free Store, an emergency curbside food pantry, was created at the prompting of their guests during the onset of the pandemic. It provides between 80-110 households with groceries, produce and personal care items at no charge to them. In 2022 Stone Soup created a tuition-free 12-week Culinary Institute program career training to people seeking a new career path, especially those who are seeking employment after a period of incarceration or recovery from addiction. Those accepted into the program leave with a Food Handlers License, a ServSafe Certificate in Kitchen Management, job skills, practicum experience, and references for securing work in the food sector of Franklin County.
Explaining her intense commitment, co-director and chef, Kirsten Levitt said; “My life’s passion is to service…humans are hardwired for service.” Head of Volunteers, Sarah Hilliard, is motivated by “a lot of love. No human being should be without food.”
Nearby in the Second Congregational Church, Gloria Matlock and volunteer tutors work with up to 20 children, to augment their chances to thrive as they grow in the innovative Twice As Smart program founded by Matlock in 2018. Her lofty four-fold mission is to:
- Provide after school academic instruction to augment children’s confidence in reading, writing, and mathematics leading to a love of learning.
- Cultivate social and listening skills.
- Encourage each child to develop their unique “voice” and to find self-expression through art and music.
- Expose children to resources, role models, and experiences that expand their educational and career possibilities.
Some Twice As Smart students are immigrants and many live in public housing.
This model of holistic education is clearing the students’ obstacle-laden path to higher education, jobs and a deep sense of self, a cause to which artist, musician, and former teacher Gloria Matlock has committed her life.
Are these programs using charity to remedy social injustice, as some might claim? Jane Addams would disagree. In 1892, this eminent social reformer explained that Hull House, her settlement house in a poor precinct of Chicago, was not a charity. Its purpose — and, for Addams, a central obligation of being a citizen — was to help America’s less fortunate make the most of themselves. “To call this effort [charity]…is to underestimate the duties of good citizenship.”
I would add that, with one-half of Americans either poor or a medical emergency away from economic ruin, these programs in our midst and the thousands like them across our country are beacons of civilization in a nation that pumps the world full of military weapons, while its soul empties from within.
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