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Billionaire Jeff Bezos donated $100 million to Feeding America during the coronavirus crisis, but regulating the charity sector could make such giving even more effective.
A global crisis demands swift action. Happily, benevolent billionaires have stepped in.
The world’s wealthiest person, Amazon founder Jeff Bezos (net worth $147.3 billion), donated $100 million to Feeding America and its network of food banks across the country (a little more than half of one one-thousandth of his wealth). Sheryl Sandberg of Facebook (net worth $1.7 billion) donated $6.5 million to relief efforts, which comes to about one-third of 1 percent of hers. Another well-known billionaire, President Donald Trump (net worth $2.1 billion) donated $100,000 to the Department of Health and Human Services, a mere .00005 percent of the president’s economic worth (not to be confused with his moral worth, of course).
The other side of this story is how billionaires are making out from the crisis. Since mid-March, billionaire wealth has grown a staggering $485 billion, according to a new report by the Institute for Policy Studies, where I’m working for the summer.
Big Philanthropy has its purposes—among them, distracting us from the ways that many of the super-rich have made or inherited their money, or shielded it from the tax obligations that the less privileged routinely meet. As payment for their largesse, donors expect not just gratitude but substantial tax breaks, too—as much as 74 percent of the value of their donations for those in the top tax brackets can be used to offset their taxes.
You may be surprised at the amount of money foundations pay out each year—in other words, how much of their money goes to actually helping people. According to federal law, foundations are required to pay out just 5 percent of their assets annually. They can also count administrative overhead and impact investments as a part of this 5 percent. Certainly, some foundations pay out more than 5 percent, but most view the rule as a ceiling, not just a floor, with some giving still falling below the 5 percent threshold.
Another institution used for tax-deductible charitable giving is the donor-advised fund (DAF)—the fastest-growing vehicle for charitable giving in the country. DAFs are not subject to the 5 percent rule—indeed, DAFs have no payout requirements at all.
In recent years, there’s been a growing public outcry about offshore tax havens and other financial vehicles that the ultra-wealthy use to avoid their responsibility to promote the general welfare, as the rest of us do. It’s time to add the charity sector to the list of institutions for the wealthy in need of regulation, to ensure that money donated under the auspices of helping the less fortunate actually reaches them.
To that end, the Institute for Policy Studies has devised a proposal to increase foundation and DAF payout in light of the coronavirus pandemic. Billed as an “Emergency Charity Stimulus,” the ECS would require foundations and DAFs to pay out 10 percent of their assets for the next three years, which would increase charitable resources for the nonprofit sector by $200 billion over three years.
Today, as the economy hovers on the brink of a second Great Depression, $1.2 trillion resides, undisbursed, in private foundations and DAFs.
When community foundations run DAFs, money tends to flow to nonprofits. But some of the largest charitable arms in the country are DAFs run by large investment firms—among them, Fidelity Investments and Charles Schwab. The charity that received the greatest amount of donations (over $4 billion) in the United States in 2017 (the last year The Chronicle of Philanthropy published such data) was not United Way, which used to claim the top spot, but the Fidelity Charitable Gift Fund.
There are few reporting requirements these firms must adhere to; many self-report high payout rates. Once the wealthy donate to these firms, though, they benefit right away, as tax deductions, including reducing their capital gains taxes, are immediately available upon deposit. Fidelity and Schwab make their money from charging annual fees; disbursing their funds too generously reduces their income.
Those who (rightly) prefer government action to solve societal problems of inequality and poverty may balk at a strategy that increases the role of the charity sector. It is true that there can be no substitute for a strong government response to reduce inequality and end poverty and economic insecurity. Indeed, much of what nonprofits do is just a response to symptoms of systemic problems. Increasing aid to a food bank will not stamp out hunger and poverty.
It’s time to add the charity sector to the list of institutions in need of regulation, to ensure that money donated under the auspices of helping the less fortunate actually reaches them.
But it will feed people now. Our social safety net has been devastated by years of disinvestment and neglect. The Supplemental Nutrition Assistance Program (SNAP, commonly called food stamps) reaches millions of families each year to help them buy groceries to feed their families, but even now, amid the pandemic, the Trump administration is moving ahead with plans to cut benefits. In a time of global pandemic, we cannot afford to wait on political will to fix the system—and the nonprofit sector can fill in the holes in the meantime. An Emergency Charity Stimulus could materially improve the lives of millions of Americans during this crisis, bringing extra resources to mutual aid networks that are ensuring that the most marginalized among us are fed and housed.
You’ve likely seen these networks in your own community—people with fewer health risks organizing themselves to deliver groceries to people’s homes or homeless shelters, for example. Nonprofits are essential institutions in many parts of the country. When I visited McDowell County, West Virginia, to report on a labor union project, I visited the only food bank in the county—the poorest in the state. It was run by volunteers without receiving a single dollar from the government—everything was from donations.
Moreover, requiring foundations and DAFs to disburse a higher share of their funds would also weaken the power of the very rich to keep foundations as eternal monuments to themselves. So many of these philanthropies are designed to continue in perpetuity, throwing some bones and scraps at social problems each year. They are intended to last forever so that billionaires’ descendants can continue handing out charity from an intact endowment and enjoy the tax benefits that come with it.
Fortunately, not all foundations operate this way. A number of foundations and DAF donors are voluntarily increasing giving during the crisis; many also believe that the payout should be doubled in this crisis. To that end, hundreds of foundation leaders and DAF donors have signed a letter encouraging Congress to take up the Emergency Charity Stimulus proposal in the next COVID-19 relief bill.
Some foundations were even working to spend themselves down before the crisis. Atlantic Philanthropies, as one example, gave at an incredibly high rate, closing its doors this year.
But we can’t rely on all charitable foundations to do what’s right on their own.
Just as philanthropy can be no substitute for a public collective action, the Emergency Charity Stimulus is not a substitute for increasing taxes on the wealthy to fund our social programs, fight climate change, and curb the power that billionaires exert over our country. But if enacted, it can compel wealthy people to share more of their wealth during the greatest crisis of our lifetimes.
