Don't Trust the Billionaires Who Say They're Giving It All Away
Ten years after a few dozen rich people made the "Giving Pledge," elite philanthropy looks mostly like a scam.
Welcome back to What Went Wrong?, a newsletter about the failures, inefficiencies, and screw-ups that define 21st-century American life, written by Harry Cheadle. Above 2013 photo of Paul Allen by Flickr user Robert Sullivan.
Paul Allen tried to avoid it, but when he died he was one of the richest people in human history. Exactly ten years ago, on August 10, 2010, he joined 39 other .01 percenters to commit to the Giving Pledge, a promise to give away more than half of their money. “Our net worth is ultimately defined not by dollars but rather by how well we serve others. Ultimately, my greatest satisfaction comes from working to make our world a better place,” Allen wrote. “Through my giving, I seek to tackle climate change, prevent dangerous epidemics, save Earth’s most iconic species from extinction and restore our oceans to health, before it’s too late.”
As a billionaire, Allen spread his wealth around in ways I find personally relatable. Donating money to fighting climate change seems like a no-brainer, and it also would be immensely fun to buy a sports team or two (Allen owned the Portland Trailblazers and the Seattle Seahawks) and build quirky museums related to your personal interests (a skilled guitar player, he founded the Museum of Pop Culture, which used to mainly be about classic rock, and its neighbor, the Science Fiction Museum and Hall of Fame). He also rode around on an insanely lavish $325 million mega-yacht. Hey, those are the perks that come when you co-found Microsoft.
Despite winning accolades for his giving, which includes hundreds of millions to groups conducting research into important things like curing Ebola, Allen's pile of money kept growing—when he died in 2018, the Atlantic noted, he was worth $20 billion, nearly 50% more than when he signed the Giving Pledge. That's such a vast fortune that the Seattle Times reported it will take years for assets to be sold and money to be distributed. Many of those billions will probably end up in the coffers of the Paul G. Allen Family Foundation, which as of its 2018 tax filing had $930 million in assets. (Like the rest of the Allen empire, the foundation is now being run by his sister, Jody Allen.)
One way to look at Allen's life of giving is to praise him for being a good, or at least benign, billionaire. He followed in the long tradition of wealthy people who want to use their immense fortunes to benefit humanity, in the mold of the previous Gilded Age’s oligarchs like Andrew Carnegie and John D. Rockefeller, who created foundations that are still powerful and deep-pocketed today.
But when those men tried to start their foundations at the beginning of the 20th century, there was pushback from politicians and left-wing groups, according to Robert Reich's 2018 book Just Giving. Back then, critics were concerned that permanent philanthropic organizations would be anti-democratic in nature: Their massive endowments would allow them to shape society by picking which causes to support, and governments and ordinary people would have no way to influence them. Today, experts like Reich say that those predictions have largely come to pass. As a new report from Inequality.org timed to the tenth anniversary of the Giving Pledge puts it, “Charity is becoming increasingly undemocratic.”
That report, called Gilded Giving 2020, finds that the world of charity is now dominated by big-money donors, who frequently route their money through personal foundations and “donor-advised funds,” which allow them to essentially retain control over their wealth while scoring huge tax writeoffs. Tax policies intended to encourage charitable giving mean that the US government subsidizes the vanity projects of the upper classes. As inequality has worsened, big-money philanthropy looks less and less like charity and more like another way for the rich to assert their power over the rest of us.
Even if the more than 200 wealthy people who have signed onto the Giving Pledge make good on their promise, a lot of that money is just going to accumulate in permanent family foundations, which these billionaires and their heirs can use for nearly whatever purpose they want. “Instead of building a private wealth dynasty, they're essentially building a philanthropic wealth dynasty,” said Chuck Collins, a coauthor of the Gilded Giving report.
Anand Giridharadas, a frequent critic of philanthropy, on CNBC in 2018.
The way the rich give is different
When you or I want to donate money to some good cause, it's pretty simple. Either we give to an organization we already know or we hunt around on Charity Navigator to find a highly rated nonprofit who will use our money in the most efficient way. We may take a tax deduction (though that is becoming less common, as I'll get to) but that's not likely at the top of our mind when we're sending $10 to the Red Cross after a natural disaster or $20 to a local food bank.
Paul Allen did not donate his money this way. Instead of giving directly to existing organizations, he set up a foundation to disperse tens of millions in grants every year to his chosen causes, which mostly had to do with science and medicine. Such foundations have lots of advantages for rich people. For one, you get to put your name on them. For another, foundations can pay salaries and expenses to trustees and employees. Allen's foundation does not pay the people who run it, reducing its overhead, but not all organizations have those priorities. The most notable instance of a foundation benefitting mainly the rich people who set it up was the Donald J. Trump Foundation, which was shuttered in 2018 by a judge who said the charity functioned as Donald Trump's “checkbook.” But there are legal ways to extract perks from a nonprofit you create. Here's an example from Gilded Giving:
According to their 2018 tax return, the latest available, the Conrad N. Hilton Foundation had total assets of $2.8 billion and spent a whopping $51 million in overhead to give out $101.1 million in grants in 2018. This overhead included $5.6 million in compensation of officers, directors and trustees; $9 million in other employee salaries and wages; $3.6 million in pensions and employee benefits; and $1.9 million in travel. Compensation included $1.56 million in salary to each of two vice-presidents/co-CFOs and over $693,000 to the foundation’s president and CEO. Annual board compensation of $35,000 was paid out to each of six Hilton family members on the board.
Though a foundation that is in part a slush fund for your family sounds like a win-win, foundations are also complicated things to establish. Many donors have flocked in recent years to an alternative called “donor-advised funds,” or DAFs. These are housed in huge financial firms like Fidelity and allow you to donate cash or any other sort of asset and take a tax deduction for that amount immediately. That money then sits in the DAF, accruing interest and paying fees to the fund manager, until you decide which good causes you want to use it to support—unlike foundations, which generally have to pay out at least 5% of their total assets in any given year, there's no requirement that a DAF has to give any money to anything.
You have to be relatively wealthy to even think about DAFs (the minimum donation to put money in one is $5,000), but they undeniably have their perks. You can donate assets at their appreciated value rather than their cost—in other words, as Collins explained it, you can donate stock in your company just as it goes public and reap the tax benefits. And since you can still decide where your money goes after you donate it, the money in a DAF is still your money in nearly every way that counts. DAFs have become the favored charitable vehicle in Silicon Valley and wherever else people have money. In 2010, just 4.4% of all donations went to DAFs; in 2018, that had spiked to 12.7%, according to Gilded Giving. “For the past three years, six of the top ten charities have been DAF sponsors,” the report adds.
All these donations add up to more power for the rich
If you give $20 to the Red Cross in response to a text message about a terrible earthquake or hurricane, that's the end of the transaction. You won't have any influence over how that $20 is spent or the Red Cross's overall strategy; there are no public policy implications of that $20 gift.
But when someone like Paul Allen gives millions, they have potential influence over the organizations that benefit from their largesse. Megadonors have more money than many of the nonprofits they give to, and as Gilded Giving notes, that leads to people who work in philanthropy feeling pressure to cater to these donors' wishes:
In 2019, the Center for Effective Philanthropy surveyed 600 nonprofit leaders, asking them how major donors could provide the most effective support. “Given the power imbalance between donors and nonprofits,” the authors wrote, “nonprofit leaders sometimes feel obligated to modify goals and strategies based on donors’ wishes or requests.” One of the most common suggestions they heard from the nonprofits they surveyed was for major donors to stop trying to “exert undue influence” on the charities they support.
Even if a billionaire isn't calling up a nonprofit and telling them what to do, giving large amounts of money is itself a way of exerting power. One example: When Mark Zuckerberg gave $100 million to help the troubled schools in Newark, New Jersey, it allowed then-mayor Cory Booker to fulfill his dream of expanding charter schools in his city. Let's set aside the complicated particulars of what happened to Newark's schools and the debate over charters. The important thing here is that Booker was able to acquire a lot of funds and achieve a policy outcome not through the usual democratic and bureaucratic processes, but by making a pitch to a tech billionaire when they were sitting next to each other at an exclusive conference hosted by an investment bank. Zukerberg’s money, even if you don’t believe it came with strings attached, had the effect of pushing Newark schools in a direction they might otherwise not have gone.
In many cases where the public sector has floundered—often due to government solutions being underfunded—philanthropy has filled in the gaps. Vanity Fair recently reported that in the absence of a coherent federal COVID-19 testing program, the Rockefeller foundation has issued public health recommendations while coordinating with many cities, states, and tribal nations. Collins said that in his struggling hometown of Detroit, the Kresage Foundation, established by the family that started Kmart, has stepped in to provide what amount to city planning services. “Wait a second, what happened to the taxpayer?” Collins asked. “What happened to publicly elected, accountable institutions?”
That this philanthropic money goes to genuinely helpful purposes doesn't get rid of the fundamentally anti-democratic nature of the process. Here's one project emphasized on the Allen Foundation website: In 2016, it spent $10 million, matched by $40 million from the US Department of Transportation, to fund transportation infrastructure in Columbus, Ohio, as part of an initiative called the Smart Cities Challenge. The program has helped lead to a spike in sales of electric cars, and it's working on an expansion of transportation options for the city's poorest residents. That all sounds good. But it's fair to wonder why the city and federal government needed to partner with a foundation at all, and whether the foundation's tech roots pushed the government to emphasize tech-based solutions to problems. For instance, did Columbus really need a self-driving bus? What's wrong with regular buses, besides there not being enough of them?
When foundations or megadonors pick which causes to support and which solutions to fund, they're shaping public policy, sometimes in profound ways. They can do this by giving to ideological think tanks like the Heritage Foundation or the Center for American Progress. Or they can give money to cities and states that are open to their pet causes, from charter schools to autonomous vehicles. And because this charitable giving is generally tax-deductible, it's being bankrolled and encouraged by the federal government. Our laws allow the wealthiest Americans to avoid paying taxes and instead fund whatever they want.
It gets worse:
Charity is becoming a private club for the wealthy
The Gilded Giving report notes some pretty striking trends:
From 2000 to 2016, the percentage of U.S. households that give to charity dropped from 66 to 53.
In 1989, individual giving (as opposed to gifts from corporations and foundations) made up 81% of all charitable donations. In 2019, that had dipped to 69% as big philanthropic institutions expanded their footprints.
From 2011 to 2015, money donated to charity in the form of gifts of $1 million or more shot up by 15%, an increase driven by “a very small number of extremely large mega-donations at the very top of the scale”—gifts of tens of millions of dollars.
In the last year, 42% of gifts from the 50 most generous donors in the US went to foundations and DAFs rather than nonprofits that directly do charitable work.
In short, fewer people are giving money to charity, and nonprofits are relying more and more on gifts from the ultrawealthy. This pattern was likely accelerated by the 2017 tax cut law passed by Republicans, which increased the standard deduction, reducing the number of people who itemized deductions like charitable donations. This disincentivized the middle class from giving to nonprofits, and Gilded Giving notes that donations dropped in 2018, the first year the new law was in effect.
But these trends also just reflect the economy as a whole becoming more unequal. The 1 percent makes up an increasing share of donations because the 1 percent has an increasing share of the world's wealth. According to Gilded Giving, of the 62 billionaires who signed the Giving Pledge in 2010, only 11 have seen their net worth decline, and their total wealth has gone from $376 billion to $734 billion. Paul Allen gave away hundreds of millions and had billions left over—and he's regarded as a generous billionaire. Some rich people literally have more money than anyone could know what to do with.
What Should the Rich Do?
There has been a lot of criticism of philanthropy in recent years, most notably Anand Giridharadas's 2018 book Winners Take All. That bestseller pointed to a key hypocrisy among tech barons and other members of the .01 percent: They may give to charity, but their fortunes are often built through ruthless exploitation and unfair practices. What good is your charitable work if you refuse to pay your employees a living wage and prevent them from unionizing?
I can picture an exasperated rich person sitting on his megayacht reading this sort of lefty critique and going, OK, but I made my money fair and square—I built a company from the ground up. Sure, I got lucky, but I pay it forward by giving money to good causes. Now you're telling me CHARITY is bad? What am I supposed to do with this money?
Chuck Collins has some personal experience with this. As a child of the Oscar Meyer family fortune, he inherited about $500,000 in 1984 dollars—not wealth on the scale of a Bezos or Allen, but enough that he could have lived off of investments (that half-million would be worth several million today had he put it in the S&P 500). His advice to billionaires trying to do the right thing today? “Find some advisors who are from outside your economic and your class interest, who have expertise on racial justice and other forms of oppression, and bring them into the giving process. Inform your giving with people who are not in your bubble of advantage.”
You should also think about what form your giving takes—Collins is skeptical of perpetual organizations like the Allen Foundation that will exert influence decades after their benefactor dies. “Move the money while you're alive,” he said. “It's about letting go. It's back to relinquishing control and dominion, it's about trusting others.”
There are examples of people doing this. Gilded Giving singles out Chuck Feeney, who made an immense fortune by founding a duty-free shopping empire and anonymously gave away $8 billion through his Atlantic Philanthropies foundation—which paid out far more than the usual 5 percent of its assets every year. (Feeney, now 89 years old, lives relatively modestly in a San Francisco apartment.)
Collins also praised MacKenzie Scott, who signed the Giving Pledge shortly after her 2019 divorce from Jeff Bezos and has made quick progress, recently donating $1.7 billion spread among over 100 organizations. She wrote on Medium that she did this after consulting “non-profit advisors with key representation from historically marginalized race, gender, and sexual identity groups.” Notably, she didn't set up a foundation, but instead gave to existing organizations.
But we should zoom out from the actions of individual billionaires. They're merely following the incentives created by government policy, which subsidizes their giving by providing them with tax breaks. Why wouldn't you store money in a foundation or a DAF if the alternative is surrendering it to the IRS?
Gilded Giving recommends a host of policy changes, including levying a wealth tax on private foundations and forcing them to pay out a higher percentage of their assets each year; it also says lawmakers should establish a minimum payout requirement for DAFs. Particularly with a pandemic raging and so many people requiring aid, it seems grotesque to have billions of “donated” wealth being warehoused in foundations and funds where they aren't doing anyone any good.
The government could enact radical reforms to tax policy as well. Since only high earners are currently taking advantage of itemized deductions from charitable giving, we should think of those deductions as a giveaway to the rich, another perk given to the 1 percent. Gilded Giving suggests a “universal giving credit” to incentivize giving from the non-wealthy, and a lifetime cap on deductions from charitable donations. The last seems the most fascinating to me: If you reduced the ways donations benefited the rich, how many would continue to give so generously? If giving to nonprofits is really a form of charity, would the rich stop doing it if it no longer meant a tax write-off? Would givers like Paul Allen still give if it meant they lost their power?
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