A new policy report suggests wealth inequality could become a problem for charities.
It’s a given that a good thing can be overdone. Eating, exercising, enthusiasm can all be taken to lengths that cause harm. And now, at the start of the giving season, comes a report that asks us to consider excess in the philanthropic world.
Charitable giving has been soaring over the past few years, setting records in each of the last two years. And that’s good. If you were just about to fill out your United Way contribution form or write a check to your favorite charity, go ahead, because you are most likely not part of the problem.
The report Wednesday from the Institute for Policy Studies and its project Inequality.org says it’s where the money is coming from that signals trouble. Charities are getting more and more of their donations from a small number of very wealthy givers, who dole out money in huge chunks, while the amount of donations from lower- and middle-income households shrinks. The report is titled “Gilded Giving: Top Heavy Philanthropy in an Age of Extreme Inequality.”
There are two reasons for the institute’s concern.
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First is that the changes in giving could affect the operations of charitable organizations, including making them more susceptible to the wishes of a few big donors.
And second, that the divide in giving reflects growing income and wealth inequality that increasingly concentrates power in fewer hands.
The Institute, an influential progressive-policy think tank, has long been concerned with income and wealth inequality, but hadn’t looked at how that played out in the philanthropic world until now. I’ll summarize some of the findings.
Most charitable giving comes from individuals, about 71 percent. From 2003 to 2013, itemized charitable deductions from donors with household income above $100,000 increased by 40 percent, while those from donors making less than that declined by 34 percent. And there has been a steady decline in the number of donors who give small to midrange donations.
The decline in small donors correlates strongly with declines in wages, employment and homeownership rates. And as wealth has grown rapidly at the top, giving by households making $10 million or more increased from 2003-2013 by 104 percent.
The report says that dependence on a small number of wealthy donors could make budgets less predictable from year to year, and could mean certain projects or organizations would be favored over other worthy charities. In some cases, big gifts result in the warehousing of donations — big chunks of money sitting in the accounts of favored organizations while other causes go begging. Private foundations are required to spend only about 5 percent of their average assets each year.
The authors also mention a hedge-fund manager’s gift of $400 million to Harvard University and Nike co-founder Phil Knight’s $400 million gift to Stanford.
Wealthy donors tend to give to different causes than middle-class or low-income donors. Big givers often favor the arts and education over social service or social organizations. And large organizations are more likely to benefit from big givers than are small charities.
The report recommends the federal government require that private foundations distribute more of their assets each year, and that it implement tax incentives that would reward spending on urgent social and community needs.
There are several recommendations for how charities might manage an imbalance in donors, and a long list of proposed legal changes. Those include changes in the tax code to discourage giving that is only about tax avoidance, for instance, and changes that would directly address the income and wealth inequality that underlie changes in charitable giving.
Josh Hoxie, one of the report authors, said in a telephone interview that the institute doesn’t want to discourage charitable giving by wealthy donors, but to highlight another aspect of growing inequality, and to spur action to reduce economic inequality.
Giving is good, but the levels of inequality we have today distort every aspect of community life, even philanthropy.
It wouldn’t make sense to dissuade wealthy people from giving, but it is reasonable to avoid any potential problems that might be caused by a few wealthy people having too much influence at the top, while a majority of the population has a hard time finding money to donate.
The report suggests raising top tax rates, changing tax rules to encourage foundations to put more of their assets to use each year, encouraging middle-class giving by adopting a tax credit for all taxpayers who contribute to charities and closing tax loopholes that hamper the ability of government to fund social services.
Reducing inequality has to be part of the solution. Inequality is one thing we always seem to have too much of.