Wealth hoarding, tax avoidance, and how nonprofits are complicit

[Image description: A squirrel, looking alert, standing among green blades of some type of plant. I think they’re a squirrel, but I can’t see their tail so can’t really be sure. Either way, this image has nothing to do with the content of this post. It is there to help calm you down while we discuss a serious topic. Image by JoeBreuer of Pixabay.com]

Happy September, everyone. Holy hummus, it’s September! Fellow parents with school-age children, I hope you are doing ok. Hang in there. We’ll make it through this together. When things get tough with virtual schooling, just remember the old adage: “The days are long, but the years are—You better not be playing Minecraft again! Get back to your Zoom class this instant or no media the rest of the day! And you! Those loose fruit snacks you found under the couch are covered with dust! Throw them away, or at least rinse with water before eating!”

I know we all have a lot on our minds, and unfortunately I must add one more thing for us to think about. Three months ago, I wrote “Have nonprofit and philanthropy become and white moderate that Dr. King warned us about?” Since then, I have been grappling with the question of how effective our work is as a sector. Are we actually doing good in the world, or have we tricked ourselves into believing that we are while in reality we’re allowing inequity and injustice to proliferate? The reality is that we’re doing both, and it’s important for us to untangle these dynamics.

Recently, I read the Gilded Giving report by the Institute for Policy Studies. It examines the trends in giving in our sector and what it means. It paints a picture that is not pretty. Here are several points we should pay attention to:

  • Starting in 2010, a bunch of billionaires signed a pledge to give away half their wealth. Since then, their combined wealth has actually doubled. From $376 billion in 2010 to $734 billion as of July 18, 2020.
  • Over the first four months of the pandemic, when everyone has been struggling, the 100 living Pledgers who were billionaires in March actually INCREASED their wealth by $213.6 billion, or 28%, from 758B in March to 972B in July.
  • Small individual giving has been in decline over the past two decades. Between 2000 and 2016, the percentage of households giving to charity has dropped from 66 percent to 53 percent.
  • Large gifts, however, have been increasing. Households making over $1M claimed 33% of all charitable deductions in 2017, up from 12% in 1995.
  • The number of foundations in existence increased by 68% between 2005 and 2019, from 71, 097 to 119,791. During this period, their assets more than doubled, from $551 billion to $1.2 trillion
  • Donor-Advised Funds (DAFs) have grown even more rapidly in number and assets. DAFs have no legal mandate to pay out anything each year. Donors take tax breaks immediately when they transfer their wealth to DAFs, but they are not legally required to actually distribute those funds to nonprofits.

This is a lot of information, and you may be thinking, “So what? Rich people are getting richer and putting their money into foundations and DAFs, what’s the big deal? It’s their money, after all.” It is a big deal. The hoarding of all this money has implications for our sector and society. As pointed out in the report, these implications include:

  • Wealthy individuals are allowed to warehouse money during a time of urgency. When so many people are facing poverty, hunger, evictions, etc., it is unconscionable that the ultra-rich are able to just hoard all that money, doling out 5% from their foundation endowments (or possibly nothing from DAFs), the rest just sitting there while people suffer. Again, this is money that they would have paid in taxes.
  • Wealthy individuals are able to control what problems society tackles and how. Jeff Bezos can decide to work on homelessness. Bill and Melinda Gates can decide to work on Malaria or education. It sounds great, until we realize that a handful of individuals get to work on whatever they feel like, not necessarily what is needed by society. Our ability to address systemic inequity should not be determined by the whims and extracurricular interests of a few rich mostly white people. 
  • Wealthy individuals use philanthropy to increase their power and privilege and worsen inequity: Examples the report provides include donors giving a bunch of money to their kids’ schools and worsen the disparity in education because poorer families aren’t able to support their schools at the same levels. These large donors then donate to their universities to get their kids admitted, a gross practice that’s a part of “legacy admission.” Major donors can also, and have been, driving conservative policies that continue to enrich them and worsen economic, social, and political inequity all around, stuff that we nonprofits have to deal with.  
  • Wealthy individuals force us to basically subsidize their deductions: All of this is concerning, and we’re actually paying for it. We’re effectively subsidizing deductions taken by wealthy people. As the report states, “for every dollar a billionaire gives to charity, the rest of us chip in as much as 74 cents to make up for the lost revenue.” It’s kind of like Amazon avoiding paying taxes and yet underpaying their employees and not providing them with sick leave etc., and then the rest of have to pitch in through taxes to provide safety net support for Amazon employees.

On Twitter, I saw this quote by Supreme Court Justice Louis Brandeis, said 80 years ago: “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.” It is undeniable now that we have reached this point where wealth is hoarded by a few people, and it’s undermining our democracy, and it’s getting worse by the day. And we need to acknowledge that we nonprofits been playing a role in it:

We positively reinforce wealth hoarding: As the number of smaller individuals shrinks and the number of larger donors increases, our sector caters more and more to major donors, providing them with special privileges and recognition. We have been doing this without really examining the long-term and wide-reaching implications. There is a direct correlation in our sector where the more money people give, the more they are treated as heroes and saviors. We do the same with foundation and DAF donors, spinning tales of the amazing things we’re doing with the 5% of endowments given out each year. All of this continues to reward people for hoarding wealth.  

We help donors charity-wash their guilt and the harm they cause: As Anand Giridharadas’s Winners Take All and others have brought up, charity work has often been used as a façade to conceal harmful stuff. At the extreme end, there’s the Sacklers giving money to nonprofits while perpetuating the opioid epidemic. But more pervasive is wealthy donors at all levels avoiding paying taxes and instead picking and choosing from a buffet of causes that appeal to them personally. This undermines our government and is harmful to society. But donors and foundations won’t feel bad about it, because we’ve consistently been telling them how awesome they are.

We allow inequitable systems to go unchallenged: Unfortunately, our sector, or at least the progressive wing of our sector, is deathly allergic to advocacy and systems change. We would rather respond to the symptoms than address the root causes. By not being engaged with changing crappy systems, we are complicit in allowing them to continue. In fact, by reinforcing donors’ and foundations’ harmful behaviors and then allowing them to charity-wash the harm they might cause, we give the illusion that progress is being made, which increases complacency and reduces the urgency to actually solve systemic problems.

By now, you might be in despair. I don’t think it’s hopeless. The Gilded Giving report provides plenty of recommendations, including increasing the legal minimum payout rate of foundations; limiting the amount of foundations’ admin costs that can count toward payout compliance; disallowing foundations from paying family members, existing in perpetuity, or counting as payout money they transfer to DAFs; imposing a legal payout rate on DAFs; letting DAF donors only take tax deductions when money flows to nonprofits; etc.

These are great, but at the crux of it, we in nonprofit and philanthropy must undergo an existential self-reckoning. I do believe in our sector’s ability to do amazing things. We have been. We do awesome stuff all the time. We lift up families, we build community, we challenge unjust laws. All of that remains true. AND we must also examine where we may be complicit in furthering the injustice we’re trying to fight.

If you’ve read this far and want to know more, please join me for two town halls, hosted by Community-Centric Fundraising, Nonprofit AF, Institute for Policy Studies, and CalNonprofits. I’ll be moderating the first one, set for 9/21 at 11am PT. For this first town hall, we will be discussing these questions: “What are the current rules governing philanthropy, especially foundations and donor-advised funds? How do these operate in practice? Are wealthy people using these vehicles to game the system?” It will feature Edgar Villanueva, author of Decolonizing Wealth; Andrea Caupain, CEO of Byrd Barr Place; and Chuck Collins, one of the co-authors of the Gilded Giving report. Read the details and register here.

The second town hall, set for 10/5 at 11am PT, will address the question “What are some of the national and state efforts looking to address the issues identified in the first town hall?” Details and registration here.

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