BILLIONAIRE PHILANTHROPY IS A CHARADE

For every dollar a billionaire donates to charity, taxpayers chip in anywhere from 37 to 57 cents in the form of lost tax revenue, depending on the status of the donor’s tax avoidance strategies. Taxpayers effectively provide matching funds for the donation priorities of private donors.  

In 2018 charitable dollars went to religion (29%), education (14%), human services (12%), grant-making foundations (12%), and health (9%).  Representative examples of billionaire philanthropy:

• Salesforce CEO Marc Benioff donated $100 million to the University of California San Francisco to build a children's hospital that will be named after him.
• The founders of Wal Mart, the Walton family, have made the economic development of Arkansas one of their goals according to their foundation's website.  They plan to spend $2.2 billion between 2016 and 2021 on developing social services and assisting economic development.
• Twitter CEO Jack Dorsey pledged a quarter of his wealth, $1 billion, to fight the coronavirus pandemic.
• California nut and fruit billionaires Stewart and Lynda Resnick pledged $750 million to the California Institute of Technology—better known as CalTech— to fund climate change research to fund programs and a large building (which of course will be named the Resnick Sustainability Resource Center).
• Financial services billionaire T. Denny Sanford, worth an estimated $3.4 billion, donated $350 million to National University in San Diego, which will be renamed to Sanford National University in July 2020.
• Private equity firm Blackstone co-founder Stephen Schwarzman donated $188 million to the University of Oxford.  The donation will fund the new Schwarzman Centre, which will house humanities, philosophy, and Oxford’s new Institute for Ethics in Artificial Intelligence.
• Founder and CEO of craft superstore chain Hobby Lobby David Green has made sizeable donations of both cash and property to several Christian colleges including Liberty University, Zion Bible College, and Oral Roberts University.

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​A popular new trend for the wealthy is the Donor-Advised Fund (DAF).  The first DAFs were created in the 1930s, though regulatory recognition did not exist until the Tax Reform Act of 1969.  In the 1990s, DAFs began to grow in popularity: DAFs held $121.42 billion in assets by 2018.  Annual contributions to DAFs were $37 billion in 2018.  Those contributions resulted in tax avoidance of between $14 billion and $21 billion that otherwise would have been contributed to the US Treasury.   A DAF allows donors to make a charitable contribution, receive an immediate tax deduction, and then request grants from the fund with no requirement about rates of disbursement – in other words, this money can be parked or hoarded indefinitely or used for essentially any non-political purpose (the money is not revocable and must be disbursed to a 501(c)(3) organization). 

On its website, the IRS claims it is aware some organizations have appeared to abuse the basic concepts underlying DAFs.  According to this narrative, these organizations appear to have been established to generate questionable charitable deductions and provide illegal benefits to donors and their families (including tax-sheltered investment income for the donors) and management fees for promoters.  This warning might just be that – an Internet search shows no imposition of excise taxes for enforcement.

​Under the Internal Revenue Code, all section 501(c)(3) organizations are prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.  Voter education activities (including presenting public forums and publishing voter education guides) conducted in a non-partisan manner do not constitute prohibited political campaign activity.  

The 20 richest Americans donated roughly $8.7 billion to charity in 2018, just 0.8 percent of their collective net worth.  In 2018, Warren Buffett's net worth stood at $88 billion and he was the largest contributor to charity.  Buffett gave away $3.4 billion which was about 3.9% of his fortune, however, if one includes the tax credit value of 37% (conservative) the net effective value was $2.5 billion or 2.8% of his net worth.  Excluding Gates and Buffett -- the two top givers -- that plummets to $2.8 billion, or 0.3 percent of their total net worth.  Those charity donations resulted in effective tax credits of a conservatively estimated $3.2 billion tax savings for those 20 richest billionaires – meaning the effective donation was only $5.5 billion. 

By 2018 the top 1% in the United States had accumulated a net worth of about $32 trillion while the bottom 50% had accumulated a net worth of only $1.3 trillion – a 25:1 ratio.  In 1989 the top 1% possessed $1.9 trillion in wealth as opposed to the bottom 50% had $0.8 trillion (a 2.4:1 ratio).  This concentration of wealth and disparity of wealth is a topic for a different investigation but as an aside, this disparity appears to be unsustainable.  Right or wrong or deserve has nothing to do with it – historically, societies with that level of disparity have revolutions and resultant corrections: a topic for a later investigation.

There are large questions posed by this investigation.  The reduction in marginal tax rates starting in the early 1980s is correlated with a concentration of wealth.  The tax code provides incentives to donations to charities in the form of deductions effectively making the taxpayer a co-funder of billionaire philanthropic activities but with no voice in the disbursement of these funds (aside from the explicit prohibition on political activity).  This tax policy should be examined and discussed and is of bipartisan concern. 

• Should charitable tax deductions be eliminated for high net-worth individuals?
• If these deductions were eliminated billionaires would still be able to fund causes but the tax deductions would then flow to the US Treasury where the funds could be disbursed through a democratic process.  Is this a better and more equitable process?
• While billionaire philanthropy is widely lauded it appears to be a small proportion of their immense net worth – beer money to them.  Is this appropriate?
• Should laws regarding DAFs be tightened and enforcement increased?
• Are marginal tax rates for the uber-wealthy too low and if they are increased can we channel that tax revenue through a democratic process for societal health?

​Data on tax deduction values acquired from The Nation (https://www.thenation.com/article/archive/philanthropy-charity-inequality-taxes).  Information on charitable contribution percentages and representative projects was provided by the National Philanthropic Trust (https://www.nptrust.org/philanthropic-resources/charitable-giving-statistics/).  Internal Revenue Service Information was provided by the Internal Revenue Service (www.irs.gov).  Information on charitable contributions by the top-20 billionaires was provided by Fox Business (https://www.foxbusiness.com/money/how-much-do-billionaires-donate-to-charity).   Statistics and the table on wealth concentration were provided by the United States Federal Reserve (https://www.federalreserve.gov/).